State Finance and Procurement - Retention Proceeds

EXPLANATION: CAPITALS INDICATE MATTER ADDED TO EXISTING LAW.
[Brackets] indicate matter deleted from existing law.
Underlining indicates amendments to bill.
Strike out indicates matter stricken from the bill by amendment or deleted from the law by
amendment.
*hb0954*

HOUSE BILL 954
P2 6lr2841
HB 1166/25 – HGO CF SB 609
By: Delegates Adams, Cullison, and Kerr
Introduced and read first time: February 5, 2026
Assigned to: Government, Labor, and Elections
Committee Report: Favorable
House action: Adopted
Read second time: March 2, 2026

CHAPTER ______

AN ACT concerning 1

State Finance and Procurement – Retention Proceeds 2

FOR the purpose of requiring that certain retention proceeds retained by a unit or a certain 3
contractor under a State procurement contract be paid within a certain period of time 4
after the date of substantial completion; and generally relating to the payment of 5
retention proceeds under a State procurement contract. 6

BY repealing and reenacting, with amendments, 7
Article – State Finance and Procurement 8
Section 13–225 9
Annotated Code of Maryland 10
(2021 Replacement Volume and 2025 Supplement) 11

SECTION 1. BE IT ENACTED BY THE GENERAL ASSEMBLY OF MAR YLAND, 12
That the Laws of Maryland read as follows: 13

Article – State Finance and Procurement 14

13–225. 15

(a) (1) In this section the following words have the meanings indicated. 16

(2) “Payment security” has the meaning stated in § 17–101 of this article. 17

(3) “Performance security” has the meaning stated in § 17 –101 of this 18
2 HOUSE BILL 954

article. 1

(b) (1) If a contractor has furnished 100% payment security and 100% 2
performance security in accordance with Title 17, Subtitle 1 of this article under a State 3
procurement con tract for construction, the percentage specified in the contract for 4
retainage may not exceed 5% of the total amount. 5

(2) In addition to retainage, a primary procurement unit and the Maryland 6
Transportation Authority may withhold from payments otherwise due a contractor any 7
amount that the unit reasonably believes necessary to protect the State’s interest. 8

(3) Retainage withheld by a primary procurement unit and the Maryland 9
Transportation Authority may be deposited in an interest –bearing escrow accou nt in 10
accordance with § 15–108 of this article. 11

(c) (1) A contractor may not retain a percentage of payments due a 12
subcontractor that exceeds the percentage of payments retained by the primary 13
procurement unit or the Maryland Transportation Authority. 14

(2) Paragraph (1) of this subsection may not be construed to prohibit a 15
contractor from withholding any amount in addition to retainage if the contractor 16
determines that a subcontractor’s performance under the subcontract provides reasonable 17
grounds for withholding the additional amount. 18

(d) (1) A subcontractor may not retain a percentage of payments due a lower 19
tier subcontractor that exceeds the percentage of payments retained from the 20
subcontractor. 21

(2) Paragraph (1) of this subsection may not be c onstrued to prohibit a 22
subcontractor from withholding any amount in addition to retainage if the subcontractor 23
determines that a lower tier subcontractor’s performance under the subcontract provides 24
reasonable grounds for withholding the additional amount. 25

(e) UNDISPUTED RETENTION PROCEEDS RETAINED BY A UNIT OR A 26
CONTRACTOR UNDER THI S SECTION SHALL BE P AID WITHIN 90 DAYS AFTER THE 27
DATE OF SUBSTANTIAL COMPLETION, AS DEFINED BY THE AP PLICABLE CONTRACT 28
OR SUBCONTRACT. 29

(F) If retainage has been placed in es crow under § 15 –108 of this article, each 30
payment of retainage shall include a pro rata portion of interest earned. 31

[(f)] (G) This section may not be construed to limit the application of the 32
provisions of Title 17, Subtitle 1 of this article. 33

SECTION 2. AND BE IT FURTHER ENACTED, That this Act shall take effect 34
October 1, 2026. 35
HOUSE BILL 954 3

Approved:
________________________________________________________________________________
Governor.
________________________________________________________________________________
Speaker of the House of Delegates.
________________________________________________________________________________
President of the Senate.