Frequently Asked Questions (FAQ)

Contracts and Agreements

Question:
We have been told there is a state law requiring retainages on construction contracts to be deposited in a separate bank account? At the close of the contract the retainage, plus the interest earned, must be paid to the contractor. Our auditor says there is no such law. Is there?

Answer:
Public Act 524 of 1980 (MCL 125.1561) provides that cities and villages may retain not more than 10% of the total dollar amount of a construction contract to assure proper performance and sets the terms and conditions for payment of the amount retained. The Act requires that the city/village deposit the funds retained in an interest-bearing account. When the contract is 94% completed, at the request of the contractor, the city must release the retainage plus interest. We have a copy of the forms used by the City of Southfield to monitor their retainage accounts. Let us know if you would like a copy.

Question:
What is the maximum amount for which we can write a contract without going out for public bids under state law.

Answer:
There is NO state law requiring public bids on municipal contracts. However, many cities and home rule villages have such a requirement written into their charter and additional cities and villages have ordinances establishing a threshold amount over which contracts must be bid. Even if your municipality does not have such a requirement, it is often prudent to solicit bids on large projects.

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