Contracts in excess of $200,000; retaining portions of payments; escrow agreements; performance bonds; payment on substantial completion; actions against surety contracts less than $250,000
Ind. Code § 36-1-12-14
in effectSec. 14. (a) This section applies to public work contracts in excess of two hundred thousand dollars ($200,000) for projects other than highways, roads, streets, alleys, bridges, and appurtenant structures situated on streets, alleys, and dedicated highway rights-of-way. A board may require a contractor and subcontractor to include contract provisions for retainage as set forth in this section for contracts that are not more than two hundred thousand dollars ($200,000). This section also applies to a lessor corporation qualifying under IC 20-47-2 or IC 20-47-3 or any other lease-back arrangement containing an option to purchase, notwithstanding the statutory provisions governing those leases.
(b) A board that enters into a contract for public work, and a contractor who subcontracts parts of that contract, shall include in their respective contracts provisions for the retainage of portions of payments by the board to contractors, by contractors to subcontractors, and for the payment of subcontractors. At the discretion of the contractor, the retainage shall be held by the board or shall be placed in an escrow account with a bank, savings and loan institution, or the state as the escrow agent. The escrow agent shall be selected by mutual agreement between board and contractor or contractor and subcontractor under a written agreement among the bank or savings and loan institution and:
(1) the board and the contractor; or
(2) the subcontractor and the contractor.
The board shall not be required to pay interest on the amounts of retainage that it holds under this section.
(c) To determine the amount of retainage to be withheld, the board shall:
(1) withhold no more than six percent (6%) of the dollar value of all work satisfactorily completed until the public work is fifty percent (50%) completed, and nothing further after that; or
(2) withhold no more than three percent (3%) of the dollar value of all work satisfactorily completed until the public work is substantially completed.
If upon substantial completion of the public work minor items remain uncompleted, an amount computed under subsection (f) shall be withheld until those items are completed.
(d) The escrow agreement must contain the following provisions:
(1) The escrow agent shall invest all escrowed principal in obligations selected by the escrow agent.
(2) The escrow agent shall hold the escrowed principal and income until receipt of notice from the board and the contractor, or the contractor and the subcontractor, specifying the part of the escrowed principal to be released from the escrow and the person to whom that portion is to be released. After receipt of the notice, the escrow agent shall remit the designated part of escrowed principal and the same proportion of then escrowed income to the person specified in the notice.
(3) The escrow agent shall be compensated for the agent's services. The parties may agree on a reasonable fee comparable with fees being charged for the handling of escrow accounts of similar size and duration. The fee shall be paid from the escrowed income.
The escrow agreement may include other terms and conditions consistent with this subsection, including provisions authorizing the escrow agent to commingle the escrowed funds with funds held in other escrow accounts and limiting the liability of the escrow agent.
(e) Except as provided by subsections (i) and (h), the contractor shall furnish the board with a performance bond equal to the contract price. If acceptable to the board, the performance bond may provide for incremental bonding in the form of multiple or chronological bonds that, when taken as a whole, equal the contract price. The surety on the performance bond may not be released until one (1) year after the date of the board's final settlement with the contractor. The performance bond must specify that:
(1) a modification, omission, or addition to the terms and conditions of the public work contract, plans, specifications, drawings, or profile;
(2) a defect in the public work contract; or
(3) a defect in the proceedings preliminary to the letting and awarding of the public work contract;
does not discharge the surety.
(f) The board or escrow agent shall pay the contractor within sixty-one (61) days after the date of substantial completion, subject to sections 11 and 12 of this chapter. Payment by the escrow agent shall include all escrowed principal and escrowed income. If within sixty-one (61) days after the date of substantial completion there remain uncompleted minor items, an amount equal to two hundred percent (200%) of the value of each item as determined by the architect-engineer shall be withheld until the item is completed. Required warranties begin not later than the date of substantial completion.
(g) Actions against a surety on a performance bond must be brought within one (1) year after the date of the board's final settlement with the contractor.
(h) This subsection applies to public work contracts of less than two hundred fifty thousand dollars ($250,000). The board may waive the performance bond requirement of subsection (e) and accept from a contractor an irrevocable letter of credit for an equivalent amount from an Indiana financial institution approved by the department of financial institutions instead of a performance bond. Subsections (e) through (g) apply to a letter of credit submitted under this subsection.
(i) This subsection applies to the Indiana stadium and convention building authority created by IC 5-1-17-6. The board awarding the contract for a capital improvement project may waive any performance bond requirement if the board, after public notice and hearing, determines:
(1) that:
(A) an otherwise responsive and responsible bidder is unable to provide the performance bond; or
(B) the cost or coverage of the performance bond is not in the best interest of the project; and
(2) that an adequate alternative is provided through a letter of credit, additional retainage of at least ten percent (10%) of the contract amount, a joint payable check system, or other sufficient protective mechanism.
[Pre-Local Government Recodification Citations: 5-16-1 part; Part new.]
As added by Acts 1981, P.L.57, SEC.38. Amended by P.L.70-1989, SEC.3; P.L.43-2003, SEC.1; P.L.120-2006, SEC.5; P.L.2-2006, SEC.189; P.L.1-2007, SEC.239; P.L.133-2007, SEC.14; P.L.28-2025, SEC.2.
Source: Open US Law by Vaquill AI (CC BY 4.0)URL: https://iga.in.gov/laws/2026/ic/titles/36Fetched: 10/17/2026