SENATE BUDGET AND APPROPRIATIONS COMMITTEE

STATEMENT TO

SENATE, No. 4028

STATE OF NEW JERSEY

DATED:  JUNE 9, 2025

      The Senate Budget and Appropriations Committee reports favorably Senate Bill No. 4028.

      As reported, the 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.  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 IMPACT:

      The Office of Legislative Services (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 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.