MANDATORY COMPLIANCE – Retention of Portion of Contract Price in Escrow

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MANDATORY COMPLIANCE – Retention of Portion of Contract Price in Escrow

 

By Jacqueline Shade

This is a reminder to any state, any department, board or agency of the state, all counties and municipalities and all departments, boards or agencies of the counties and municipalities, including all school and education boards, and any other subdivision of the state.  According to the Tennessee Code Annotated (TCA) 66-34104, whenever there is a contract for the improvement of real property with a contract amount of $500,000 or greater, retention of any portion of the contract price (a.k.a retainage) is required to be deposited in a separate, interest-bearing, escrow account with a third party.  This section states all funds accumulated in the escrow account together with all interest on the account shall be paid immediately to the contractor to whom the funds and interest are owed upon satisfactory completion of the contract.  Compliance with this section is MANDATORY and may not be waived by contract.  Failure to comply with this section will result in a $300 penalty per day for each day that such retained funds are not deposited in an interest-bearing, escrow account, which will be paid to the owner of the retained funds. Failure to comply with this section within seven (7) days of receipt of written notice regarding such failure is a Class A misdemeanor.

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