Colorado retainage law caps the amount that can be withheld on a construction project at 5% of the value of work completed, and that ceiling applies to public owners, private owners, contractors, and subcontractors alike. On public jobs the state also sets release deadlines, requires payments to flow down to subcontractors within seven days, and treats every construction payment as a trust fund. On private jobs the 5% cap is the main statutory limit; release timing is left to the contract.
The 5% Cap on Public and Private Projects
For public contracts exceeding $150,000, the government entity must pay at least 95% of the value of completed work as the job progresses. The remaining 5% can be held until the contract is satisfactorily completed and accepted.1Justia. Colorado Code 24-91-103 – Public Entity – Contracts – Partial Payments
The same 5% ceiling applies to private construction. No property owner, contractor, or subcontractor may withhold more than 5% of the price of work completed under a contract or subcontract. Accepting a partial payment does not mean the work has been approved and does not waive any claim for defects.2FindLaw. Colorado Code 38-46-103 – Retainage
The private-project statute governs the amount only. It does not override contract terms about payment timing, conditions precedent, or backcharges. A pay-when-paid clause requiring the general to receive the owner’s money before paying a sub, for example, remains enforceable.2FindLaw. Colorado Code 38-46-103 – Retainage
When Retainage Has to Be Released
On public projects, the public entity must make final settlement within 60 days after the contract is completed and accepted. There is one carve-out: if the entity determines that satisfactory progress is being made, it can authorize early release of retainage to a contractor or subcontractor who has finished its portion of the work. The entity has to find substantial reasons for the early payment and get written approval from any surety on the project.1Justia. Colorado Code 24-91-103 – Public Entity – Contracts – Partial Payments
On private projects, Colorado law does not fix a release deadline. The contract controls. Most agreements tie release to either substantial completion or final completion, so read the payment terms carefully before signing.
Seven-Day Flow-Down and the 15% Interest Penalty
When a contractor on a public project receives payment from the government, the contractor must pay each subcontractor its share within seven calendar days. The rule cascades down: subcontractors receiving payment must pay their own sub-subcontractors, laborers, and suppliers within the same seven days.1Justia. Colorado Code 24-91-103 – Public Entity – Contracts – Partial Payments
Miss that window and the party holding the money owes interest at the rate specified in the contract or 15% per year, whichever is higher. Interest accrues on the full unpaid amount from the date payment was due until it is actually made.1Justia. Colorado Code 24-91-103 – Public Entity – Contracts – Partial Payments The statute imposes this penalty on contractors and subcontractors who sit on downstream payments; it does not set a separate interest charge against the public entity itself.
Construction Payments Are Trust Funds
Every dollar disbursed to a contractor or subcontractor on a construction project must be held in trust for the subcontractors, laborers, and material suppliers who have a lien or potential lien on the property. Retainage is included.3Justia. Colorado Code 38-22-127 – Disbursements
Diverting those funds is theft under Colorado’s criminal code. A general contractor who receives retainage from the owner and spends it on a different job instead of paying the subs who earned it can face criminal charges, not just a civil claim.3Justia. Colorado Code 38-22-127 – Disbursements
There are exceptions. A contractor who has furnished a performance or payment bond, or whose owner has signed a written release, is not required to hold the funds in trust. Contractors must keep separate records for each project, but they aren’t required to maintain a separate bank account for each one, so long as trust funds aren’t spent improperly.3Justia. Colorado Code 38-22-127 – Disbursements
Final Settlement Notice and the 90-Day Claim Window
Before a public entity can close out a contract worth more than $150,000 and release retainage, it must publish notice of final settlement at least twice in a newspaper of general circulation in the county where the work was performed, or through an approved electronic medium. The notice has to run at least 10 days before settlement.4Justia. Colorado Code 38-26-107 – Supplier May File Statement – Notice – Withholding Funds
That notice is the trigger for unpaid parties. Anyone who furnished labor or materials and hasn’t been paid can file a verified statement of the amount owed with the public body that awarded the contract. Once the claim is filed, the contracting body must hold back enough of the contractor’s money to cover it.4Justia. Colorado Code 38-26-107 – Supplier May File Statement – Notice – Withholding Funds
Ninety days after the published final settlement date, the contracting body releases any withheld money that isn’t tied up in active litigation. A claimant who has not filed suit and recorded a lis pendens notice within that 90 days loses access to those funds; they go to the contractor.4Justia. Colorado Code 38-26-107 – Supplier May File Statement – Notice – Withholding Funds
Mechanic’s Lien Rights on Private Projects
Unpaid contractors, subcontractors, laborers, and material suppliers can file a mechanic’s lien against the private property where the work was performed. The lien can block a clean sale or refinance until the debt is resolved, and it can be foreclosed to force a sale.5Justia. Colorado Code 38-22-101 – Liens in Favor of Whom – When Filed – Definition of Person
The filing deadlines are strict:
- Contractors, subcontractors, and material suppliers must file the lien statement within four months after the last day labor was performed or materials were furnished.6Justia. Colorado Code 38-22-109 – Lien Statement
- Day laborers and piece workers who did not furnish materials must file within two months after completion of the building or improvement.6Justia. Colorado Code 38-22-109 – Lien Statement
On single- and double-family dwellings, a lien filed more than two months after completion generally cannot encumber the interest of a bona fide purchaser who bought the home without knowledge of the unpaid debt. Miss the filing deadline and the lien right is gone.
Bond Claims on Public Projects
Mechanic’s liens generally cannot attach to public property. In its place, Colorado requires the contractor on a public project to furnish a bond guaranteeing payment to subcontractors, laborers, and material suppliers. If the contractor or a subcontractor doesn’t pay for labor, materials, equipment, or supplies, the surety must cover the unpaid amount plus interest at 8% per year.7Justia. Colorado Code 38-26-106 – Contractor Executes Bond – Applicability
An unpaid party has 90 days from the date fixed for final settlement to bring an action against the surety, individually or with other claimants.4Justia. Colorado Code 38-26-107 – Supplier May File Statement – Notice – Withholding Funds Watching for the published final settlement notice is essential on any public job where money is owed.
Federally Funded Projects
Projects that receive federal transportation funding carry an additional layer of retainage rules. Federal regulations require that retainage be returned to a subcontractor within 30 days after that subcontractor’s work is satisfactorily completed. A prime contractor cannot hold a subcontractor’s retainage until the whole project is finished and the prime has been paid in full.8eCFR. 49 CFR 26.29 – What Prompt Payment Mechanisms Must Recipients Have
The federal framework gives recipients three options: decline to hold retainage at all and prohibit primes from doing so; decline to hold retainage from primes but require primes to release subcontractor retainage within 30 days; or hold retainage from primes while accepting completed portions incrementally, with primes required to pay subcontractors within 30 days of each incremental payment.8eCFR. 49 CFR 26.29 – What Prompt Payment Mechanisms Must Recipients Have
Federal projects over $100,000 also require the prime to furnish a Miller Act payment bond protecting subcontractors and suppliers who go unpaid.9Office of the Law Revision Counsel. 40 USC 3131 – Bonds of Contractors of Public Buildings or Works On Colorado projects with federal funding, both state and federal rules apply, and the stronger protection generally controls.
Recovering Withheld Retainage
When talking doesn’t work, a breach of contract lawsuit is the direct route. A court can order payment of the withheld retainage and, in some cases, consequential damages such as extra borrowing costs caused by the delay.
Attorney’s fees are harder. Colorado allows fee recovery when a court finds a claim or defense substantially frivolous, groundless, or vexatious.10Justia. Colorado Code 13-17-101 – Legislative Declaration Simply losing a retainage fight isn’t enough to trigger a fee award. Many construction contracts add their own fee-shifting clauses, which give a separate route to recovery, and any mandatory arbitration or mediation clause in the contract has to be honored before filing in court.