HB1224eng 104TH GENERAL ASSEMBLY

HB1224 Engrossed LRB104 06221 JRC 16256 b

AN ACT concerning government.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 1. Short title. This Act may be cited as the State Agency Retainage Act.

Section 5. Definitions. As used in this Act:

"Retainage" means a portion of moneys withheld from the payment of a contract for a specified period of time to ensure that a contractor or subcontractor completes a construction project in the manner specified in the contract. "Retainage" does not include (i) moneys withheld due to violations of local, State, or federal laws or (ii) moneys withheld from grants to entities for capital improvements to non-State property.

"Satisfactory progress" means the advancement of project work without deficiency and in accordance with industry standards and the contractual schedule and budget.

"State agency" has the meaning given in Section 1-7 of the Illinois State Auditing Act.

Section 10. Determination of satisfactory progress. Subject to the limitations in Section 15, a State agency may withhold as retainage a portion of the moneys from the payment of a contract that is entered into on or after the effective date of this Act if and only if the State agency determines that satisfactory progress has not been achieved by a contractor or subcontractor during any period for which a payment is to be made. If the contractor or subcontractor has displayed unsatisfactory performance on previous State agency projects resulting in a low performance score or suspension of prequalification, the State agency may apply retainage from the beginning of the project. Retainage may not be used as a substitute for good contract management, and the State agency may not withhold funds without cause. Determinations to retain and the specific amount to be withheld must be made by the State agency on a case-by-case basis and must be based on an assessment of past performance and the likelihood that such performance will continue. The State agency shall re-evaluate its determination at subsequent project milestones.

Section 15. Limitations on the amount of retainage. The amount of retainage withheld may not exceed 10% of the amount of the draw amounts submitted and approved under the terms of the contract until the contract is 50% completed, may not exceed 5% of the amount of the draw amounts submitted and approved under the terms of the contract for the duration of the contract, and may be decreased as the contract approaches completion to recognize better than expected performance, the ability to rely on alternative safeguards, and other factors. Upon completion of all contract requirements, amounts retained under this Act must be paid promptly.

Section 20. Limitations on retainage from subcontractors.

(a) Notwithstanding any other provision of law, if a State agency has not withheld retainage from a payment to a contractor on a project, then that contractor may not withhold retainage from a payment to a subcontractor for the same project.

(b) If a State agency has withheld retainage from a contractor in accordance with Section 10, then the contractor may withhold retainage from a payment to a subcontractor, but only to the extent that the amount retained from payment to the contractor by the State agency is attributable to a failure on the part of the subcontractor to make satisfactory progress with respect to the subcontractor's contractual obligations.

(c) This Section applies only to subcontracts entered into on or after the effective date of this Act in connection with a State construction contract that is subject to the provisions of Section 10.

Section 99. Effective date. This Act takes effect July 1, 2026.