Colorado’s new retainage bond requirement (HB 26-1311) introduces a smart way for contractors to manage cash flow on construction projects. Instead of waiting months to recover retained funds at the end of a job, contractors can now use a surety bond to access that money sooner.
This means more working capital during the project—helping contractors cover costs, take on additional work, and grow without being held back by retained cash.
What is a retainage bond?
A retainage bond is a type of surety bond that allows contractors to recover retained funds that would otherwise be withheld until project completion. In Colorado, retainage is generally capped at 5% on construction contracts of $150,000 or more.
Instead of the project owner holding that money, the contractor provides a bond as a financial guarantee.
In simple terms:
- Owner keeps money → traditional retainage
- Contractor provides bond → contractor gets paid sooner
What changed in Colorado? (HB 26-1311)
Colorado’s HB 26-1311 – Retainage Surety Bond Construction Contracts introduces a formal pathway for contractors to substitute retained funds with a surety bond.
Key Takeaways:
- Colorado law generally prohibits owners from retaining more than 5% on construction contracts of $150,000 or more.
- Contractors may replace retained funds with a retainage bond.
- This applies to construction contracts that use retainage.
- Protects: Project owners, subcontractors, and suppliers
- Aligns Colorado with other states that allow similar bonding options.
This change is designed to improve contractor cash flow and reduce reliance on withheld project funds, especially for those scaling or working on multiple projects at once. HB 26-1311 reflects a growing trend across states to modernize retainage practices using surety-backed alternatives.
Bottom line: Contractors now have a way to access retained cash during the project, rather than waiting until the end.
Why This Matters for Contractors in Colorado
Retainage has always been one of the biggest cash flow challenges in construction.
Without a Retainage Bond:
- Up to 5% of payments are held as retainage.
- Cash is tied up for months, sometimes until the final project closeout.
- Limits the ability to take on new work.
With a Retainage Bond:
- You receive full or near-full payment during the project.
- Working capital improves immediately.
- You can bid and execute more jobs simultaneously.
For growing contractors, this can be a major unlock.
How a Retainage (or Retention) Bond Works
Here’s how the process typically looks:
- The contractor requests retainage release.
- The contractor purchases a retainage bond.
- The contractor submits a bond to the project owner.
- The owner releases retained funds.
- The bond guarantees:
- Project completion
- Payment to subs and suppliers
If the contractor fails to meet their contractual obligations, the surety steps in—just like with performance and payment bonds.
How It’s Different from Performance & Payment Bonds
Contractors often ask how this compares to standard construction bonds.
- Guarantee project completion
- Guarantee subcontractors and suppliers are paid
- Replace withheld funds (cash flow tool)
- Still protect the same parties, but serve a different purpose
Important: A retainage bond doesn’t replace performance and payment bonds. It works alongside them.
Who Should Consider a Retainage Bond?
This new option is especially valuable for:
- Contractors scaling into larger projects
- Businesses managing multiple jobs at once
- Contractors with tight working capital
- Firms looking to grow bonding capacity
If retainage is slowing your growth, this is worth exploring.
Cost of a Retainage Bond
Retainage bonds are typically priced similarly to other contract bonds.
Typical Range:
- ~1%–3% of the bond amount (varies based on credit and financials)
Underwriters will look at:
- Credit history
- Financial strength
- Work-in-progress (WIP)
- Experience and project size
Real-World Examples: How Retainage Bonds Work
Example 1: General Contractor Unlocking Cash Flow
A general contractor is awarded a $2,000,000 public project in Colorado.
- The contract includes 5% retainage.
- That means $100,000 is withheld.
Instead of waiting until final completion to receive that $100,000, the contractor:
- Purchases a $100,000 retainage bond for 2% of the bond amount (or $2,000).*
- Provides the bond to the project owner.
- Receives the withheld funds during the project.
Result:
- The contractor now has access to that $100,000.
- They can use it for payroll, materials, or to take on another project.
- The owner remains protected through the bond.
👉 This is especially powerful for contractors trying to scale beyond one or two projects at a time.
Example 2: Subcontractor Getting Paid Faster
A subcontractor is working under a general contractor on a large commercial build.
- Their subcontract is $300,000.
- The GC is holding 5% retainage ($15,000).
Instead of waiting months after finishing their portion of the work, the subcontractor:
- Provides a retainage bond to the general contractor (for around 3% of the retained amount, or $450).*
- Requests release of the $15,000 retainage.
Result:
- The subcontractor gets paid sooner.
- Improves cash flow for labor, equipment, and upcoming jobs.
- The general contractor still has protection if issues arise.
👉 For subs operating on tighter margins, this can make a major difference in staying financially stable between projects.
*Bond premiums for contractors typically range from around 1%–3% of the bond amount (varies based on credit and financials).
What This Means for the Construction Industry
Colorado’s move reflects a broader shift in construction:
👉 Less reliance on withheld cash
👉 More use of surety-backed financial guarantees
For contractors, that means:
- More flexibility
- Faster growth potential
- Better alignment with modern project financing
For full statutory details, see Colorado House Bill 26-1311.
Frequently Asked Questions
No—this law allows retainage bonds as an option. It doesn’t require them on every project.
It depends on contract terms, but the law creates a framework that supports acceptance. Project owners may still specify requirements in their contracts, so contractors should confirm acceptance of retainage bonds within the project terms.
Not automatically. It allows contractors to substitute a bond for retained funds.
The law primarily affects construction contracts that use retainage, which can include public and private projects, depending on the terms.
How to Get a Retainage Bond in Colorado
At ZipBonds, we make the process fast and straightforward.
What You’ll Need:
- Basic business info
- Project details
- Financials (for larger bonds)
What You Can Expect:
- Fast review (often same-day for qualified applicants)
- Clear guidance on approval
- Competitive rates
Final Thoughts
Colorado’s new retainage bond law is a big win for contractors. If you’ve ever felt stuck waiting on retainage to be released, this gives you a way to:
- Improve cash flow
- Take on more work
- Grow faster
Like many surety tools, the value isn’t just compliance but opportunity.
Want to unlock your cash flow with a retainage bond?
See if you qualify for a retainage bond in minutes—no SSN required to get started.
👉 Start your retainage bond quote today.