Illinois Gov. Bruce Rauner vetoed a bill which would have mandated “retainage” provisions in private construction contracts.

The veto late Friday came after thousands of Illinois REALTORS® responded to two Calls for Action over the course of several months.

Senate Bill 3052 would have dictated the amount of money a developer could hold back paying to a contractor on a project to ensure the work was completed. The amount held back until project completion is known in the development and construction industry as “retainage.”

Under the terms of the proposed law, a developer could only hold back 10 percent of the total contracted cost, and that retainage would be reduced to five percent once 50 percent of the construction job was completed.

In a statement attached to the voto, Rauner said while the proposed law seeks to address cash-flow problems for contractors and subcontractors, it would deprive developers of leverage to address inadequate work.

“Our state could not prosper without our contractors and subcontractors, and we should encourage fair contracting practices in the public and private sectors,” Rauner wrote. “This governmental overreach, however, intrudes upon private entities’ right to negotiate their own contracts, and it may constrain economic development.”

Illinois REALTORS® President Matt Difanis agreed.

“This bill undercut the right of developers and the contractors they work with to draft their own terms of agreement on how payments for a project should be handled,” said Matt Difanis, president of Illinois REALTORS®. “All construction projects are not the same, so it makes little sense to impose a one-size-fits-all approach for paying contractors.”

“We are gratified that Gov. Rauner understood our point of view and listened to our members on this important issue,” Difanis said.

SB3052 passed out of the Senate on April 25, setting up a hard-fought battle in the House which played out in the final days of the legislative general session in May. Rauner had until the end of August to make a decision on the bill’s fate. 

Illinois REALTORS® asked members to take part in two Calls for Action, one during the legislative battle, and most recently, one asking Rauner to veto the bill.

Illinois REALTORS® noted that allowing the state to dictate the retainage terms was akin to “putting its thumb on the scale” in favor of contractors and against developers. Parties to construction agreements are fully capable of negotiating contracts and retainage rates, just as they have always done without any state intervention, the association argued.