Colorado prompt payment act and retainage rules

On a Colorado public contract over $150,000, the public entity makes partial payments monthly (or as soon as practicable after month end), paying at least 95 percent of completed work, so retainage tops out at 5 percent. The prime must pay subs within 7 calendar days of being paid, or owe interest at the contract rate or 15 percent per year, whichever is higher. Final settlement comes within 60 days after the job is accepted. No general prompt payment statute for private construction turned up in the Colorado statutes reviewed here; on private jobs the contract and the trust fund law in C.R.S. 38-22-127 do the work.

Public projects: partial payments and retainage

C.R.S. 24-91-103 applies to contracts over $150,000 awarded by the state or a county, city, town, or district for highways, public buildings, public works, and similar improvements. If the contractor is performing satisfactorily, the entity authorizes partial payments at the end of each calendar month or as soon after as practicable, paying at least 95 percent of the calculated value of completed work. The withheld amount can be kept until the contract is completed satisfactorily and finally accepted.

Final settlement follows the procedure in C.R.S. 38-26-107 within 60 days after completion and final acceptance. That procedure matters for subs and suppliers. On contracts over $150,000, the entity publishes notice of final settlement at least twice, at least 10 days before settlement. Unpaid claimants can file a verified statement of their claim up to the time of final settlement, and the entity then withholds enough to cover it. Those funds cannot be held more than 90 days after the published settlement date unless the claimant sues and files a lis pendens notice within that time.

There is also an early-release path. If satisfactory progress is being made on a phase, the entity may, on the contractor's written request, release retainage to the contractor or to subs whose work is finished and finally acceptable. Before paying, it must find satisfactory and substantial reasons and get written approval from the surety. Excavation, concrete, and steel subs who finish early should ask for this in writing.

Substituting securities for retainage

On contracts over $150,000, C.R.S. 24-91-105 lets the contractor withdraw some or all of the retainage by depositing acceptable securities of equal market value: U.S. Treasury obligations, Colorado state or political subdivision bonds, or certificates of deposit from insured banks or savings and loans based in Colorado. If the securities lose value, the contractor must top them up. Under 24-91-106, the entity and contractor can use a Colorado bank or savings and loan as escrow agent for the securities, and 24-91-109 requires the prime to pass retained payments and interest to its subs in proportion to what it withheld from each.

Paying subs on public work

• Deadline: the prime pays each sub the amounts actually received for that sub's work within 7 calendar days, if the sub is performing satisfactorily.
• Interest: if the prime is late, it owes interest at the contract rate or 15 percent per year, whichever is higher, from the required payment date until paid.
• Lower tiers: subs owe the same 7 day payment and interest to their suppliers, sub-subs, and laborers.
• Paperwork: a sub must give the prime a list of its suppliers, sub-subs, and laborers with each pay request. Until it does, the prime is relieved of the 7 day and interest requirements.
• Retention terms: the 7 day rule does not change the retention provisions of the subcontract.

Because the sub's clock runs from the prime's receipt of payment, the statute reads like a pay-when-paid rule. It does not say whether a pay-if-paid clause can push the risk of owner nonpayment onto the sub, so treat that as a contract question; see pay-if-paid vs pay-when-paid clauses explained. Article 91 also yields when federal funding comes with inconsistent retention or payment requirements (C.R.S. 24-91-110), and C.R.S. 24-91-103.5 voids public contract clauses that bar delay damages caused by the public entity.

Private projects: contract terms and the trust fund statute

Article 91 covers public entities only, and no general private prompt payment statute turned up in the Colorado statutes reviewed for this page, so on private work the schedule, retainage percentage, and release trigger all come from the contract. The main statutory protection is C.R.S. 38-22-127: money paid to a contractor or sub on a construction project is held in trust for the subs, suppliers, and laborers who have or may have lien or bond claims for that work. Contractors must keep separate records of account for each project, though a separate bank account is not required. Misusing trust funds counts as theft. The trust rule does not apply where the contractor furnished a performance or payment bond or the owner gave a written release.

For state agencies generally, C.R.S. 24-30-202(24) directs the state controller to adopt rules requiring payment for supplies and services within 45 days or interest at 1 percent per month, though a written contract's own payment terms are not affected.

Related Colorado guides

See Colorado mechanics lien law for lien deadlines, Colorado contractor license requirements, and Colorado prevailing wage. The prompt payment act glossary entry covers the concept nationally. Smart Business Automator keeps job-level records of payments received and paid out, which supports both the 7 day rule and the trust fund recordkeeping; see construction accounts receivable automation.