LEGISLATIVE FISCAL ESTIMATE

SENATE, No. 4028

STATE OF NEW JERSEY

221st LEGISLATURE

 

DATED: JUNE 6, 2025

 

 

SUMMARY

 

Synopsis:

Limits amount of payment that State agency as property owner may withhold from certain contractors on State construction contracts to two percent of amount due.

Type of Impact:

Indeterminate impact on State cash balances.

Agencies Affected:

State agencies which own properties where construction projects take place.

 

 

Office of Legislative Services Estimate

Fiscal Impact

Annual

 

State Expenditure Impact

Indeterminate

 

 

 

 

·       The Office of Legislative Services (OLS) determines that the bill will have a small indeterminate impact on State cash balances due the net present value of cash from retainage amounts in construction contracts.  Retainage refers to a percentage of a contract amount or payment which is withheld from a contractor until the contract is complete.  The bill limits these withholdings to two percent of an individual payment.  The bill will have no impact on the overall project cash flow or total payments made for each project.

·       The size of the present value calculation is impacted by the length of time between the interim payments and the final reconciliation, the amounts of the withholdings, and the interest rate earned on the cash retained.

·       Any positive impacts of the two percent retainage limit would be reduced if the current retainage levels are greater than two percent.  Higher retainage levels increase State cash balances and yield a larger net present value.  The OLS lacks the informational basis to estimate the net effect of any changes in aggregate cash balances that will result from this bill.

 

 

BILL DESCRIPTION

 

     This bill prohibits State agencies from withholding more than two percent of the amount due on each partial payment owed to the contractor on State construction projects.  The bill requires contractors to provide a performance bond within 15 days of the award or conditional award in order to be eligible for this two percent retainage limitation.  This limitation will not apply when a contractor has had a contract terminated for cause in the past five years prior to the contract award.

 

 

FISCAL ANALYSIS

 

EXECUTIVE BRANCH

 

      None received.

 

OFFICE OF LEGISLATIVE SERVICES

 

      The OLS determines that the bill will have a small indeterminate impact on State cash balances due to the net present value of cash from retainage amounts in construction contracts.  Retainage refers to a percentage of a contract amount or payment which is withheld from a contractor until the contract is complete.  The bill will have no impact on the overall project cash flow or total payments made for construction projects involving a State agency as the property owner.  The potential benefit would be the slight increase in the present value of cash retained by the State agency.  The variables involved in the savings would be the length of time between the interim payments and the final reconciliation, the amounts of the withholdings, and the interest rate earned on any cash retained by the State agency.  The bill limits these withholdings to two percent of an individual payment. 

      The bill requires contractors to provide a performance bond within 15 days of the award or conditional award in order to be eligible for this two percent retainage limitation.

      Since each project has a unique payment stream and dollar value, the OLS cannot precisely calculate the potential value of the retainage; however the two percent cap reduces the potential fiscal impact to small values relative to the project size.  In addition, any positive impacts from the two percent retainage would be reduced if the retainage levels in place prior to the implementation of the bill are greater than two percent.  Higher retainage levels would result in a relatively larger increase in State cash balances and yield a larger net present value.  Given these factors, the OLS lacks the informational basis to estimate the net effect of any changes in aggregate cash balances that will result from this bill.

 

 

Section:

Commerce, Labor and Industry

Analyst:

John Gaudioso

Associate Fiscal Analyst

Approved:

Thomas Koenig

Legislative Budget and Finance Officer

 

 

This legislative fiscal estimate has been produced by the Office of Legislative Services due to the failure of the Executive Branch to respond to our request for a fiscal note.

 

This fiscal estimate has been prepared pursuant to P.L.1980, c.67 (C.52:13B-6 et seq.).