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SB 165

Contracts; retainage bonds permitted in construction contracts, effective clause.

2026 Regular Session Introduced by Jeremy McPike

Virginia allows construction contractors to substitute retainage bonds for traditional payment holdbacks, improving contractor cash flow while protecting project owners.

Acts of Assembly Chapter text (CHAP0485)
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Bill Summary · SB 165

Legislative bill overview

SB 165 permits construction contractors to use retainage bonds as an alternative to traditional retainage (holdback) in construction contracts. Rather than the general contractor withholding a percentage of payment (typically 5-10%) until project completion, contractors can instead post a bond guaranteeing satisfactory completion. The bill has already passed the Virginia Senate unanimously and is now in House committee.

Why is this important

Retainage is a widespread practice that can strain cash flow for subcontractors and suppliers on construction projects. Allowing bonds as an alternative could improve liquidity for smaller contractors and subcontractors while still protecting project owners. This change affects how billions of dollars flow through Virginia's construction industry annually and reflects a shift toward modernizing construction payment practices.

Potential points of contention

  • Bond cost allocation: Unclear who bears the cost of retainage bonds (contractor, subcontractor, or owner), which could shift financial burdens rather than eliminate them
  • Bond adequacy: Questions about whether bond amounts will be sufficient to cover actual defects or incomplete work, potentially leaving owners underprotected
  • Market readiness: Bonding companies may lack appetite for widespread retainage bond coverage, limiting practical availability despite legal permission

Compiled from official sources — confirm details with the bill’s official record.

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