Background of Louisiana Revised Statute 9:4815
Louisiana has a unique statute in its Private Works Act which requires owners to deposit retainage funds in an interest bearing escrow account for construction contracts over $50,000. While a number of other states have statutory provisions as to how much retainage may be withheld under a construction contract, Louisiana’s statute, which does not regulate those substantive terms, instead dictates how those funds are handled during the course of the project.
The statute, found at Louisiana Revised Statute 9:4815, was added to the Private Works Act by Act 638 of 2010. While the bill as originally introduced applied to all funds withheld from periodic payments by an Owner, the final version of the Act applies only to “retainage.”
Requirements of the Retainage Statute
The retainage statute applies to construction contracts over $50,000. It requires the owner to deposit funds withheld from periodic payments as retainage into an interest bearing escrow account.
The retainage statute primarily applies to commercial construction, as residential and industrial construction projects are generally included within the Act’s express exclusions for single family or double family residences and various industrial facilities.
The retainage statute requires that the escrow account be under the control of an escrow agent mutually agreeable to the owner and contractor and provides specific guidelines for when the disputed and undisputed retainage funds should be released following completion of the work.
Last, the retainage statute provides a qualified immunity for the escrow agent and financial institution where the escrow account is maintained.
Since its introduction in 2010, this escrow requirement has been largely ignored in practice, due in large part to the absence of any penalty or enforcement mechanisms.
It has become common practice in construction agreements executed since 2010 for the parties to waive the escrow requirements of the Act. The question of whether or not the provisions of the retainage statute can be waived has been the subject of some debate. On one hand, the language of 9:4815 is imperative. It says that the retainage, “shall be deposited by the owner into an interest bearing account.” On the other side of the argument is the absence of any penalty or enforcement mechanism and the current state of Louisiana law, that the broader protections of the Private Works Act are not considered to be matters of public policy, and may be waived. There are no published decisions addressing this issue.
In 2012, the author of Act 638 of 2010 introduced a bill that would have expressly dictated that the requirements of 9:4814 are not waivable (SB 340). He has prefiled a similar bill for the 2013 session, Senate Bill 137, which would prohibit waiver of the escrow requirements, but which would also raise the contract amount from $50,000 to $500,000.
It will be interesting to see whether SB 137 fares better in 2013 than did SB 340 in 2012.