Gregory Vasil, CEO of the Greater Boston Real Estate Board, is angered by a new state law pushed by subcontractors that creates favorable payment terms for them.
Mary Moore
Reporter- Boston Business Journal
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The construction industry is in turmoil over a sweeping new law pushed by subcontractors that, at its core, provides subs with favorable treatment when it comes to the timing of their payments from owners and developers.
Among the most contentious parts of the new law, which has angered some members of the developer community, is the reduced amount of money owners and developers can withhold from the subs who are working on their building projects through a practice known as “retainage.” Developers have long argued that withholding money from subs gives them leverage toward the end of a project if problems arise and subs are needed to return to the job and do additional work.
Subcontractors argue that they need more cash in hand to buy material and to keep their businesses running.
The Associated Subcontractors of Massachusetts was the driving force behind the legislation, which Gov. Deval Patrick signed into law on Aug. 8. Monica Lawton, CEO of the trade group, disagreed with developers’ assertions that they need the extra retainage funds to maintain leverage over subcontractors.
“They live by their reputations,” Lawton said of subcontractors. “Because they’re not going to get another project with a general contractor if they have a reputation of walking out on a job and not coming back.”
The measure, which establishes a definitive process and timing for payments to subcontractors and for the close-out of construction projects, applies to projects valued at $3 million and higher. Starting in early November when its provisions go into effect, the new law limits the amount a developer can withhold to 5 percent of a subcontractor’s contract. The current industry standard is for developers to withhold 10 percent of the contract.
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