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F I S C A L I M P A C T R E P O R T

SPONSOR SCORC

ORIGINAL DATE

LAST UPDATED

2/1/07

2/24/97 HB

SHORT TITLE

Repealing Retainage Act

SB 604/SCORCS

ANALYST Propst

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Office of the Attorney General (OAG)

Energy, Minerals and Natural Resources Department (EMNRD)

SUMMARY

Synopsis of Bill

Senate Corporation and Transportation Committee Substitute for Senate Bill 604 repeals NMSA

1978, Sections 57-28-1 through 57-28-11, the Retainage Act.

SIGNIFICANT ISSUES

The Retainage Act governs the withholding and payment of “retainage", or money payable to the

contractor or subcontractor that has been withheld by the owner conditioned on substantial

completion of all work in connection with a construction contract. It applies to most construction

projects except for those contracted for by the Department of Transportation and for the

construction of residential property containing four or fewer dwelling units. It generally prohibits

the withholding or retainage on a construction project unless an escrow agreement is used. The

law currently sets time limits for payment to contractors, governs dispute resolution between

owners and contractors with respect to retainage; provides penalties for failing to deposit or

withhold retainage; and provides for the award of attorney fees and costs.

Senate Bill 604/SCORC – Page

2

The committee substitute for SB 604 provides a number of definitions including a definition of

“construction", “contractor", “owner" and “subcontractor. It also provides a section on prompt

payment and that payment may be made by first class mailing, electronic funds transfer or by

hand delivery. If the owner fails to pay the contractor within 21 days, the owner is required to

pay interest computed as one and one-half percent of the undisputed amount per month or

fraction of the month until paid.

The committee substitute further provides that a local public body may make payment within 45

days if the source of funding is grant money and the contract provides for payment after 21 days

and language in the bill is contained in the contract.

PERFORMANCE IMPLICATIONS

EMNRD notes that removing these strictures should provide more flexibility to the state with

contractors, expanding the state’s ability to ensure task completion and the ability to fix errors in

a rapid manner, with a minimal amount of effort on the state’s part. This should improve state

efficiency in terms of project completion and save agencies time and money. The removal of the

late fees language tracks changes the Department of Finance and Administration has made in

other contract boilerplate, providing for consistency in contracting documents and saves the state

money.

ADMINISTRATIVE IMPLICATIONS

The Attorney General notes that if this act is repealed, presumably the withholding and payment

of retainage will be governed by contract provisions negotiated between the owner and

contractor.

WEP/mt