Colorado HB 26-1311 Introduces Retainage Bond Option for Private Construction Projects

Colorado has enacted a new state law, HB 26-1311, which modifies retainage practices on private construction projects. Signed into law by Governor Jared Polis on May 7, 2026, this legislation aims to provide contractors and subcontractors with an alternative to traditional withheld funds. The change is expected to influence cash flow management and risk distribution within the construction sector.

The introduction of HB 26-1311 marks a shift in how retainage is managed on private construction projects in Colorado. Previously, property owners, contractors, and subcontractors could withhold up to 5% of the value of completed work, often tying up significant capital for contractors and subcontractors. This new law provides an option for these parties to submit a retainage bond from a licensed surety in lieu of having funds withheld. This mechanism allows contractors and subcontractors to retain liquidity, potentially alleviating financial strain, especially on large or extended projects where earned money might otherwise remain inaccessible until project completion or specific conditions are met.

For property owners and general contractors, the law mandates acceptance of a qualifying retainage bond, which introduces a new procedural requirement and shifts the nature of the financial guarantee. While the core protection of ensuring work completion or addressing defects remains, the method of securing that protection changes from direct fund retention to a surety instrument. The law also establishes a flow-down mechanism, requiring contractors who accept a bond from an owner to accept similar bonds from their subcontractors. This change necessitates a comprehensive understanding of the bond requirements, surety qualifications, and how these new rules integrate with existing contractual agreements and payment schedules across the private construction industry.