§ 36-1-12-14 — Contracts in excess of $200,000; retaining portions of payments; escrow agreements; performance bonds; payment on substantial completion; actions against surety contracts less than $250,000

(a) This section applies to public work
contracts in excess of two hundred thousand dollars ($200,000) for
projects other than highways, roads, streets, alleys, bridges, and
appurtenant structures situated on streets, alleys, and dedicated
highway rights-of-way. A board may require a contractor and
subcontractor to include contract provisions for retainage as set forth
in this section for contracts that are not more than two hundred
thousand dollars ($200,000). This section also applies to a lessor
corporation qualifying under IC 20-47-2 or IC 20-47-3 or any other
lease-back arrangement containing an option to purchase,
notwithstanding the statutory provisions governing those leases.
(b) A board that enters into a contract for public work, and a
contractor who subcontracts parts of that contract, shall include in their
respective contracts provisions for the retainage of portions of
payments by the board to contractors, by contractors to subcontractors,
and for the payment of subcontractors. At the discretion of the
contractor, the retainage shall be held by the board or shall be placed
in an escrow account with a bank, savings and loan institution, or the
state as the escrow agent. The escrow agent shall be selected by mutual
agreement between board and contractor or contractor and
subcontractor under a written agreement among the bank or savings
and loan institution and:
(1) the board and the contractor; or
(2) the subcontractor and the contractor.
The board shall not be required to pay interest on the amounts of
retainage that it holds under this section.
(c) To determine the amount of retainage to be withheld, the board
shall:
(1) withhold no more than six percent (6%) of the dollar value of
all work satisfactorily completed until the public work is fifty
percent (50%) completed, and nothing further after that; or
(2) withhold no more than three percent (3%) of the dollar value
of all work satisfactorily completed until the public work is
substantially completed.
If upon substantial completion of the public work minor items remain
uncompleted, an amount computed under subsection (f) shall be
withheld until those items are completed.
(d) The escrow agreement must contain the following provisions:
(1) The escrow agent shall invest all escrowed principal in
obligations selected by the escrow agent.
(2) The escrow agent shall hold the escrowed principal and
income until receipt of notice from the board and the contractor,
or the contractor and the subcontractor, specifying the part of the
escrowed principal to be released from the escrow and the person
to whom that portion is to be released. After receipt of the notice,
the escrow agent shall remit the designated part of escrowed
principal and the same proportion of then escrowed income to the
person specified in the notice.
(3) The escrow agent shall be compensated for the agent's
services. The parties may agree on a reasonable fee comparable
with fees being charged for the handling of escrow accounts of
similar size and duration. The fee shall be paid from the escrowed
income.
The escrow agreement may include other terms and conditions
consistent with this subsection, including provisions authorizing the
escrow agent to commingle the escrowed funds with funds held in
other escrow accounts and limiting the liability of the escrow agent.
(e) Except as provided by subsections (i) and (h), the contractor
shall furnish the board with a performance bond equal to the contract
price. If acceptable to the board, the performance bond may provide for
incremental bonding in the form of multiple or chronological bonds
that, when taken as a whole, equal the contract price. The surety on the
performance bond may not be released until one (1) year after the date
of the board's final settlement with the contractor. The performance
bond must specify that:
(1) a modification, omission, or addition to the terms and
conditions of the public work contract, plans, specifications,
drawings, or profile;
(2) a defect in the public work contract; or
(3) a defect in the proceedings preliminary to the letting and
awarding of the public work contract;
does not discharge the surety.
(f) The board or escrow agent shall pay the contractor within
sixty-one (61) days after the date of substantial completion, subject to
sections 11 and 12 of this chapter. Payment by the escrow agent shall
include all escrowed principal and escrowed income. If within
sixty-one (61) days after the date of substantial completion there
remain uncompleted minor items, an amount equal to two hundred
percent (200%) of the value of each item as determined by the
architect-engineer shall be withheld until the item is completed.
Required warranties begin not later than the date of substantial
completion.
(g) Actions against a surety on a performance bond must be brought
within one (1) year after the date of the board's final settlement with the
contractor.
(h) This subsection applies to public work contracts of less than two
hundred fifty thousand dollars ($250,000). The board may waive the
performance bond requirement of subsection (e) and accept from a
contractor an irrevocable letter of credit for an equivalent amount from
an Indiana financial institution approved by the department of financial
institutions instead of a performance bond. Subsections (e) through (g)
apply to a letter of credit submitted under this subsection.
(i) This subsection applies to the Indiana stadium and convention
building authority created by IC 5-1-17-6. The board awarding the
contract for a capital improvement project may waive any performance
bond requirement if the board, after public notice and hearing,
determines:
(1) that:
(A) an otherwise responsive and responsible bidder is unable to
provide the performance bond; or
(B) the cost or coverage of the performance bond is not in the
best interest of the project; and
(2) that an adequate alternative is provided through a letter of
credit, additional retainage of at least ten percent (10%) of the
contract amount, a joint payable check system, or other sufficient
protective mechanism.
[Pre-Local Government Recodification Citations: 5-16-1
part; Part new.]
As added by Acts 1981, P.L.57, SEC.38. Amended by
P.L.70-1989, SEC.3; P.L.43-2003, SEC.1; P.L.120-2006, SEC.5;
P.L.2-2006, SEC.189; P.L.1-2007, SEC.239; P.L.133-2007, SEC.14;
P.L.28-2025, SEC.2.