The recently enacted New Mexico Retainage Act is a victory for the New Mexico Sheet Metal Contractors Association. This SMACNA group assisted in the drafting of legislation and played a major roll in lobbying for its passage.

Here is a brief summary of the New Mexico legislation that applies to both private and public construction projects:

  • If retainage is required, the owner must put the funds in an interest-bearing escrow account. Interest accrues on a pro rata basis for the party to which it is owed.
  • Retainage is limited to 5% of the contract value.
  • Prompt pay provision sets a timeframe for owner, contractor, and subcontractor to pay all construction contractor proceeds, except retainage, within 21 days after receipt of an undisputed pay request.
  • All lower tier payees shall be paid within seven days.


    Retainage forces contractors to increase bid prices to absorb the loss of capital and to pay for the interest on the money they have to borrow. Therefore, many quality firms are deterred from bidding certain projects.

    Usually, contract language specifies the time of release, such as “at the time of project completion.” The reality is that contractors typically wait months, and sometimes even years, for payment in full for their work. This is especially true for early-finishing trade contractors, who finish their work near the beginning of a project’s life-span, but very often wait to be paid in full until all trades are finished.

    Retainage reform will result in more affordable construction and improved business relationships among all parties involved in the construction process.

    For more information regarding the New Mexico legislation, contact NMSMCA executive director David McCoy at 505-881-1161 or e-mail him at

    Publication date: 03/04/2002