On February 17, 2025, the Maryland Legislature introduced Senate Bill 835, a significant piece of legislation aimed at reforming payment practices in public contracting. The bill seeks to address concerns regarding retainage—the portion of a contractor's payment withheld until project completion—by establishing clearer guidelines for its application and ensuring timely payments to subcontractors.

One of the bill's key provisions allows primary procurement units and the Maryland Transportation Authority to withhold payments they deem necessary to protect the state's interests. This measure aims to enhance accountability and safeguard public funds in construction projects. Additionally, the bill stipulates that retainage withheld can be deposited into an interest-bearing escrow account, providing a financial incentive for contractors and subcontractors alike.

Senate Bill 835 also introduces restrictions on how much retainage can be withheld at various levels of contracting. Contractors are prohibited from retaining a higher percentage of payments from subcontractors than what they themselves are subject to from the primary procurement unit. This provision is designed to ensure fairness and transparency in payment practices throughout the contracting chain. Similarly, subcontractors are restricted in their ability to withhold payments from lower-tier subcontractors.

A notable aspect of the bill is its requirement that undisputed retainage must be paid within 90 days after the substantial completion of a project. This timeline aims to alleviate cash flow issues that often plague subcontractors, particularly smaller firms that rely heavily on timely payments to maintain operations.

While the bill has garnered support for its potential to improve financial practices in public contracting, it has also sparked debates among stakeholders. Some contractors express concerns that the new regulations may complicate existing payment structures, while advocates argue that the bill is a necessary step toward protecting subcontractors and ensuring fair treatment in the industry.

The implications of Senate Bill 835 extend beyond the immediate contracting community. By promoting timely payments and fair practices, the legislation could enhance the overall efficiency of public projects, potentially leading to cost savings for taxpayers. As the bill moves through the legislative process, its impact on Maryland's construction industry and public procurement practices will be closely monitored by both supporters and critics alike.

Senate Bill 835 is set to take effect on October 1, 2025, marking a pivotal moment in Maryland's approach to public contracting and payment practices. As the state prepares for this change, the focus will remain on how these new regulations will shape the landscape of construction and procurement in the years to come.