(a)  No contract for construction, as defined in § 5-65-1, or for state or municipal public works projects, as defined in this title, excluding contracts under § 37-12-10, shall include retainage that exceeds five percent (5%) of any progress payment.

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(b)  Not later than fourteen (14) days after reaching substantial completion, as defined in § 5-65-1, the prime contractor shall submit to the project owner a notice of substantial completion, substantially in the form provided in this subsection, stating the date on which the project was substantially complete.

(c)  The project owner shall accept or reject the notice of substantial completion within fourteen (14) days of receipt of the notice. The project owner shall indicate its acceptance by signing the notice in the space provided, and shall deliver the notice to the prime contractor within the same fourteen-day (14) period. If the project owner fails to deliver the notice to the prime contractor within the fourteen-day (14) period, the notice shall be deemed accepted. If the project owner rejects the notice of substantial completion, the project owner shall, within fourteen (14) days of receipt of the notice described in subsection (b), notify the prime contractor in writing of the rejection, and include in the rejection the factual and contractual basis for the rejection, and a certification that the rejection is made in good faith. A rejection of the notice shall be subject to the dispute resolution provisions of the contract for construction, which, notwithstanding any provision in the contract to the contrary, shall be commenced by the prime contractor within seven (7) days of receipt of the rejection of the project owner. The prime contractor and project owner shall prosecute the dispute resolution procedures diligently, expeditiously, and in good faith. A notice of substantial completion not rejected by the project owner within fourteen (14) days of receipt of the notice and in accordance with this subsection shall be deemed accepted by the project owner. Upon an express or deemed acceptance of a notice of substantial completion, the date of substantial completion shall be the date stated in the prime contractor’s notice for all purposes, and the acceptance shall be final and binding on the project owner and its successors and assignees.

(d)  Not later than fourteen (14) days after the express or deemed acceptance of the notice of substantial completion or, in the case of a dispute, final and binding resolution of the dispute, the project owner shall submit to the prime contractor a written list describing all incomplete or defective work items and deliverables required of the prime contractor under the prime contractor’s contract for construction. The list shall be certified by the project owner as made in good faith. Not later than twenty-one (21) days after the express or deemed acceptance of the notice of substantial completion, or, in the case of a dispute, final and binding resolution of the dispute, the prime contractor shall submit to each person from whom the prime contractor is withholding retainage, a written list describing all incomplete or defective work items and deliverables required by the person under the person’s contract for construction, which list may include items beyond those on the project owner’s list. The list shall be certified by the prime contractor as made in good faith.

(e)  The project owner and prime contractor shall fulfill their obligations pursuant to subsections (b), (c) and (d) of this section in good faith and in a timely manner. Except where the contract for construction shall provide for an earlier submission, following the expiration of sixty (60) days after substantial completion or, in the case of a dispute under subsection (c), final and binding resolution of the dispute, a person may submit a written application for payment of retainage in the form required by the person’s contract for construction. An application for payment of retainage shall be accompanied by a written list identifying the incomplete or defective work items and deliverables on its received list that the person has completed, repaired, and delivered. The list shall be certified by the person submitting the application for payment of retainage as made in good faith. Subject to subsection (f), an application for payment of retainage shall be paid not later than thirty (30) days following submission of the application, or on the next payment cycle in accordance with the established state revolving fund (SRF) payment schedule; provided, however, that the time period for payment of an application for retainage by the person at each tier of contract below the owner of the project may be extended by seven (7) days longer than the time period applicable to the person at the tier of contract above the person.

(f)  Not more than the following amounts may be withheld from the payment of retainage:

(1)  For unknown or foreseeable defects that may become known in the first year after substantial completion, one-half percent (½%) may be held for up to one year following the date of substantial completion;

(2)  For incomplete, incorrect, or missing deliverables, either the value of the deliverables as mutually agreed upon in writing by the parties to the contract for construction of the person seeking payment of retainage pursuant to the contract or if no value has been agreed upon in writing by the parties, the reasonable value of the deliverables which shall not exceed two and one-half percent (2.5%) of the total adjusted contract price of the person seeking payment of retainage;

(3)  One hundred fifty percent (150%) of the reasonable cost to complete or correct incomplete or defective work items; and

(4)  The reasonable value of claims and any costs, expenses, and attorney’s fees incurred as a result of the claims if permitted in the contract for construction of the person seeking the payment of retainage. No amount shall be withheld from the payment of retainage unless the person seeking payment has received, before the date that the payment is due, a description, in writing, of the incomplete or defective work items and incomplete, incorrect, or missing deliverables, the factual and contractual basis for the claims, and the value attributable to each incomplete or defective work item, deliverable, and claim. The writing shall be certified as made in good faith. A person may submit additional applications for payment of retainage in the form required by the person’s contract for construction following completion or correction of incomplete or defective work items, the furnishing of deliverables, or the resolution of claims. The additional applications shall be paid, and amounts may be withheld from payment, in accordance with subsection (f).

(g)  Retainage held by the project owner on account of the prime contractor’s self-performed labor, materials, and equipment shall be eligible for payment to the same extent as if the labor, materials, and equipment had been provided by a person under a contract for construction with the prime contractor.

(h)  If the prime contractor has not been declared in default under the requirements of the contract for construction with the project owner and subject to this section, the project owner shall not withhold any part of the retainage of a person under a contract for construction with the prime contractor or the prime contractor’s proportional retainage calculated thereon for a claim that the project owner asserts against the prime contractor that is not based on the performance of the person or a default of the person’s contract for construction.

(i)  A contract for construction may establish the date of the month for submission of an application for payment of retainage; provided, however, that the contract may not restrict the submission to less frequently than one application per calendar month. An application submitted prior to the date established in the contract for construction shall be deemed submitted as of the date established in the contract. A rejection of an application for payment of retainage and a dispute regarding incomplete or defective work items, deliverables, or claims shall be subject to the applicable dispute resolution procedure. A provision in a contract for construction that requires a person to delay commencement of the applicable dispute resolution procedure for more than thirty (30) days after either the rejection of an application for payment of retainage or written notice of the dispute is provided, whichever first occurs, shall be void and unenforceable. The payment of retainage shall be subject to subsection (e).

(j)  A communication required by this section to be in writing may be submitted in electronic form and by electronic means.

(k)  A provision in a contract for construction that purports to waive, limit, or subvert this section or redefine or expand the conditions for achievement of substantial completion for payment of retainage shall be void and unenforceable.

(l)  Any contract under this section, as defined by § 37-13-1, that exceeds twelve (12) months in duration shall allow those subcontractors who are substantially complete within the first third (?) of the project to request from the prime contractor release of retainage pursuant to subsections (b), (c), (d) and (e).

(m)  The Rhode Island department of transportation (RIDOT) shall be exempt from the provisions of this section and may deduct from any payments required pursuant to any construction contract an amount reasonably sufficient to secure satisfactory performance of contractual work which amount shall not exceed five percent (5%) of the contract price.