Colorado’s Retainage Bond Law: What Contractors Need to Know About HB 26-1311

Colorado’s Retainage Bond Law: What Contractors Need to Know About HB 26-1311

By Tom Patton, CCIFP. President and founder, Evergreen Surety. 

Colorado House Bill 26-1311 officially becomes a law on August 12, 2026. Governor Polis signed it on May 7, 2026, and it applies to private construction contracts created on or after the effective date. This law will dramatically affect the Colorado construction market.

Here’s the short version. On private projects, you can post a surety bond instead of leaving your retainage in someone else’s bank account. If the bond meets the statutory requirements, the party holding your money has to accept it and release the cash. The intent of this law is to expedite cash flow to contractors and subcontractors.

Below we cover what the law says, who it applies to, what subcontractors get out of it, how these bonds are underwritten, and what they cost.

If you’d rather just talk it through, call us at 720-258-6182 and we’ll tell you in one conversation whether a retainage bond fits your project.

What retainage is, and why it ties up your cash

Retainage is the slice of every progress payment an owner or general contractor holds back until the job hits certain milestones. On qualifying private projects in Colorado, it’s capped at 5% of the work completed. Five percent sounds minor. On a $4 million subcontract, it’s $200,000 you can’t touch.

Subcontractors feel it worst. If your scope wraps early, your retainage still isn’t due until the entire project reaches substantial completion. You’ve done the work and paid your crew and suppliers. The money that carries your profit is the money still being held.

That’s working capital you’re lending to the project, interest free. It’s one of the first contract terms we look at when a client asks whether a job is worth chasing. We place construction surety bonds in Colorado on projects of every size, and retainage comes up in almost every one of those conversations.

Colorado’s 5% retainage cap and where the new law fits

Colorado has capped retainage on private construction contracts since 2021. The cap is 5% on contracts of $150,000 or more, and it sits in C.R.S. § 38-46-101 et seq. Public projects were capped at 5% back in 2011 under a separate statute.

HB 26-1311 doesn’t touch the cap. It gives you a way around having the cash withheld at all. The language impacts Colorado Revised Statutes 38-46-101 and 38-46-103, adding a definition of a retainage bond and a right to use one.

Colorado isn’t the first state here. Construction retainage laws by state vary widely, and a handful of others already allow some form of bond substitution. If you work outside Colorado, check each state’s statute before assuming the same right applies.

What HB 26-1311 actually does

The law dictates that commercial property owners and general contractors working on private construction projects must accept a surety bond in lieu of holding retainage. This isn’t a favor you ask for. If your bond meets the statutory requirements, the party upstream has to take it and release the retainage it covers.

A few practical points. The bond can be provided to the property owner or upstream contractor at any time, at the beginning, middle, or end of the project. There are no specified bond forms. The bond amount can’t exceed 5% of the money earned under the contract or subcontract.

The bond has to guarantee two things. The principal must faithfully perform all provisions of their contract, and the principal must pay all laborers, suppliers, and subcontractors the amounts owed under it.

The surety has to be an insurer licensed to issue the bond in Colorado. The owner or upstream contractor is allowed to require a minimum A.M. Best financial strength rating, but that requirement can’t exceed A-. So A- is the highest bar anyone can hold you to, not a floor every carrier has to clear.

Who the law covers, and who it doesn’t

Private work only. If the property is owned by a public entity, the retainage bond option isn’t available, and that exclusion reaches contracts arising from public-private partnerships. Public project retainage still runs under C.R.S. § 24-91-103 and hasn’t changed.

Timing matters as much as project type. The law applies to contracts created on or after August 12, 2026. A contract you signed in June doesn’t qualify, even if the work runs well into 2027.

Both contractors and subcontractors can use it. The statutory definition also covers assurance that goods, materials, or equipment meet the specifications needed for satisfactory performance, which matters if your scope is supply rather than installed work.

What subcontractors get out of this

This is the part most coverage skips, and it’s the part that matters most if you’re a sub.

If an owner accepts a retainage bond from the general contractor, that GC then has to accept a like bond from any subcontractor who submits one. A sub can also require the contractor to post a bond covering the sub’s portion of retainage. The right runs down the chain, not just up it.

There’s a cost-sharing wrinkle. If the GC posts a retainage bond that frees up your retained funds, the GC can withhold your share of the bond premium. You get your cash early and pay a proportional piece of the premium for it.

For a sub whose scope finishes in the first third of a long project, that trade is usually an easy call. We write surety bonds for subcontractors across every specialty trade in Colorado, and this is the single biggest cash flow change we’ve seen for that group in years.

How a retainage bond works

A retainage bond is a three-party agreement. You’re the principal. The surety carrier issuing the bond guarantees your obligations. The obligee is the owner or upstream contractor accepting the bond in place of cash.

If you don’t perform or don’t pay, the obligee can file a claim. The carrier won’t automatically agree with the obligee and pay, and it won’t automatically protect you either. It stays neutral, investigates, and then either resolves the claim or denies it and defends you.

If the carrier does pay a claim, it looks to indemnify itself through your corporate and personal assets. That’s genuine skin in the game, and it’s why underwriters care so much about who they’re standing behind.

One more point that gets missed. The bond and its proceeds are subject to claims and liens in the same manner and priority as Colorado’s mechanics’ lien statutes. Posting a retainage bond doesn’t strip anyone’s lien rights. 

If you want the mechanics of pursuing a bond, see our guide on how to file a payment bond claim.

Retainage bonds versus performance and payment bonds

If you already carry P&P bonds, a retainage bond isn’t a duplicate, but it’s closer in substance than most people assume.

Both guarantee performance and payment. The difference is scope and who drives it. A performance and payment bond covers the full contract value and is usually required by the owner before you break ground. A retainage bond covers only the retainage being released, its limit equals that amount, and you’re the one initiating it to get your own money back.

That distinction is why the same carrier will often treat it as a small addition to a risk they’ve already accepted. 

We handle both on the same programs for our surety bonds for general contractors clients.

How retainage bonds get underwritten in Colorado

Surety carriers in Colorado have indicated they will underwrite retainage bonds in a similar fashion as standard construction performance and payment bonds. Three situations cover almost everyone.

If the surety carrier supported (or will support) P&P bonds for the contract, approval of the retainage bond will likely be automatic.

If the principal has an existing surety relationship, approval will be straightforward, even if P&P bonds were not required.

If the principal does not have an existing surety relationship, the underwriter will look to confirm that the principal is capable of completing the work. Traditional underwriting is based on the three C’s of Character, Capacity, and Capital. The principal will need to have strong personal credit and a track record of completing similar projects.

For retainage amounts greater than $500,000, corporate financials will also be needed for underwriting.

If you haven’t been through surety underwriting before, our page for contractors new to the bonding process walks through what carriers ask for and why they ask for it.

What a retainage bond costs

The rate for retainage bonds will be around 1%-2% of the bond’s limit, which will equal the amount of retainage being held.

Treat that as a range, not a quote. Rate depends on your credit, your financials, and your history with the carrier. If capacity is your constraint rather than rate, the SBA Surety Bond Guarantee Program can give newer contractors support they wouldn’t get on their own balance sheet.

How to get started

Start by confirming the project qualifies. It has to be private work under a contract created on or after August 12, 2026.

Then pin down the number. The bond limit equals the retainage being released, capped at 5% of the money earned to date.

Then get us the file. For most requests that means a bond application, a current work in progress schedule, and authorization to pull personal credit. Above $500,000 of retainage, add corporate financial statements. If you already run a bond program through our office, we probably have most of it already.

From there we go to the carrier. If they wrote your P&P bonds on the same job, this moves quickly. 

You can read more about Evergreen Surety and how we work before you call.

Frequently asked questions

What is retainage in construction?

Retainage is money an owner or general contractor withholds from each progress payment as security that the work gets finished and everyone downstream gets paid. In Colorado, it’s capped at 5% on qualifying private contracts of $150,000 or more.

Can a general contractor refuse my retainage bond?

No, not if the bond meets the statutory requirements. Acceptance is mandatory under HB 26-1311, and the party holding the retainage has to release the amount the bond covers.

Does HB 26-1311 apply to public projects?

No. It applies only to private construction contracts. Property owned by a public entity is excluded, and so are contracts arising from public-private partnerships.

Who pays for a retainage bond?

The party posting the bond pays the premium. If a general contractor posts a bond that releases a subcontractor’s retainage, the GC can withhold the subcontractor’s proportional share of that premium.

Does a retainage bond replace my performance and payment bond?

No. A P&P bond covers the full contract value and is typically required by the owner. A retainage bond covers only the retainage being released and is initiated by you.

Do I lose my lien rights if I post a retainage bond?

No. The bond and its proceeds are subject to claims and liens in the same manner and priority as Colorado’s mechanics’ lien statutes.

When can I submit the bond?

Any time. Beginning, middle, or end of the project. There’s no deadline in the statute and no required bond form.

Talk to us about a retainage bond

If you’re bidding or negotiating private work that starts after August 12, we can tell you in one conversation whether a retainage bond makes sense and what it will take to get one issued.

Call Tom Patton directly at 303-520-0249, email tpatton@evergreensurety.com, or contact Evergreen Surety and we’ll get back to you the same day.

This article is general information about Colorado law and isn’t legal advice. Talk to a Colorado construction attorney about your specific contract.