State of Washington Delays Implementation of New Retainage Release Law

Substitute House Bill 1555, approved by the Washington State Legislature, became effective on July 26, 2009.

One of the key new provisions of the law is to require public agencies in the State to request approval from the State Department of Labor and Industries prior to the public agency releasing retainage funds to the contractor for public works projects of $35,000 or more. The purpose of the review by Labor and Industries is to verify that the contractor and subcontractors have paid workers compensation premiums to the State.

On Friday, July 24, 2009, the Department of Labor and Industries issued a communication delaying implementation of this provision of SHB 1555 until sometime "on or after October 1, 2009." L&I noted that they are "delaying enforcement while we are preparing our computer systems."

One of the other changes embedded in SHB 1555 is that public agencies are now required to obtain a release from the Employment Security Department, in addition to the Department of Revenue prior to releasing retainage to the contractor for public works projects of $35,000 or more. While many pubic agencies have, by practice, required the approval from Employment Security prior to release of retainage, the new law now requires it.

Thus, one of the practical impacts of SHB 1555 is that public agencies, effective July 26, 2009, must have in hand, an approval from both the Department of Revenue and the Employment Security Department prior to release of retainage. The implementation of the approval from Labor and Industries will apparently not take place until sometime on or after October 1, 2009.

SHB 1555 also changes the priority order for claims filed against the retainage by moving claims by state agencies ahead of claims by subcontractors and suppliers.

If your agency would like training on the public works close-out process including a discussion of bonding, retainage, and claims, and how the new law impacts it, please contact me. I have prepared a four hour training program that addresses the complexities of these subjects.