By Ramona du Houx
Local business owners spoke in support of legislation proposed by Rep. Denise Tepler which would ensure developers of large-scale projects pay contractors and subcontractors more of what they are owed in a timely fashion.
“Improving cash flow for contractors and subcontractors will make it easier for them to earn a living, hire more employees and transition between jobs,” said Tepler at a public hearing before the Legislature’s Labor, Commerce, Research and Economic Development Committee Thurday. “We have the opportunity to encourage business and job growth by putting more capital to work.”
Under current law, private developers can withhold any portion of a project’s cost – customarily around 10 percent – until the entire project is determined to be fully complete. Withholding that money can hurt both contractors and smaller subcontractors who often complete their portion of a project earlier in the building phase but end up waiting years for the final payment, especially if there are major delays in the overall project.
Tepler’s bill limits the amount a private developer can withhold to 5 percent of a project’s total cost – the same limit now used by the state for public development projects.
“A move to 5 percent retainage would still ensure that general and subcontractors complete their work and would allow them to keep more of the money that they’ve earned,” said Tepler. “Right now many contractors don’t see that final 10 percent for several months after job is done. The larger the job, the harder that can be on their business.”
Gordon Kinney, owner of All Season Brick and Stone in Topsham, told committee members Tepler’s bill would help subcontractors like him keep their businesses in better financial shape.
“When credit lines are maxed, and suppliers want their money within 30 days, only holding 5 percent retainage would help most subcontractors with their cash flow,” said Kinney. “Please consider this change to help the many sub-contractors that could use this money that they have earned and not have to go into their line of credit to fund a job.”
Nick Whatley, President of Morningstar Marble & Granite in Topsham, also expressed concern about the current trend toward 10 percent retainage.
“I checked an income statement for the last ten years and found that we have had a 5.7 percent profit margin,” said Whatley. “I think in my industry this is pretty typical. I do not feel that it is fair for a general contractor to hold what essentially is twice our margin for an indeterminate and sometimes extended time period.”
The committee will hold a work session on Tepler’s bill in the coming days and make a recommendation to the full Legislature.
Tepler, a member of the Legislature’s Taxation Committee, is serving her first term in the Maine House and represents Topsham.