Every contractor knows the feeling. You finished the work. You sent the invoice. But 5% of what you earned is sitting in someone else's account — and it's going to stay there until the entire project closes out. That could be six months. It could be two years.
That's retainage. And if you're a Colorado contractor, the rules just changed in your favor.
Colorado HB26-1311 passed the Senate 33-2 on April 7, 2026, and is headed to the Governor's desk. When signed, it will give contractors a new option: post a surety bond and get your retainage released immediately — no more waiting until the last punch list item is checked off on a project you finished months ago.
Here's what changed, how it works, and what you need to do to take advantage of it.
Under existing Colorado law, property owners can withhold up to 5% of each progress payment as retainage on construction contracts of $150,000 or more. That money is held until the retention period ends and all remaining work is complete.
HB26-1311 changes the game by giving contractors the right to substitute a surety bond for that retainage holdback. And it's not optional for the project owner — if the bond meets the bill's standards, the owner must accept it and release the retainage.
Here's what the bill does:
The bill passed the House 55-9 on March 23 and cleared the Senate 33-2 on April 7 with no amendments. It has bipartisan support and is expected to be signed into law.
A retainage bond — also called a retention bond or release of retainage bond — is a three-party agreement between the contractor, the project owner, and the surety company.
The contractor is the principal. You're the one requesting early release of retainage. The project owner is the obligee — the party the bond protects. The surety company issues the bond, guaranteeing that you will complete all remaining punch list items and correct any defects during the retention period.
Once the bond is in place, the project owner releases the retainage to you and holds the bond as security instead. If you fail to finish the work or fix defects, the owner can file a claim against the bond.
The owner's protection doesn't change. They had financial security before through the retainage holdback — now they have it through the bond. The difference is that your money is back in your business instead of sitting in their account.
This isn't abstract. Run the numbers on your own projects.
Example 1: General contractor, $3 million highway project
Example 2: Subcontractor, $800,000 scope on a 2-year project
Example 3: GC running three bonded projects simultaneously
The premium is a small fraction of the cash you unlock. And the cash flow benefit compounds — that money can fund mobilization on your next project, cover payroll during a slow draw period, or simply keep your working capital healthy. Stronger working capital means higher bonding capacity at your next annual review. The bond pays for itself.
HB26-1311 has a provision that matters specifically to subcontractors, and it's significant.
Under the new law, a subcontractor can require the general contractor to submit a retainage bond to the project owner for the sub's portion of retainage. The GC can also require the sub to post a like bond back to the GC.
This is a big deal. Subcontractors are often the ones who feel retainage the hardest. You finish your scope early in the project, but your retainage is tied to the overall project completion date — which could be a year or two after you packed up and left the site. You're essentially giving the project owner an interest-free loan with money you already earned.
Previously, the option to post a retainage bond in lieu of holdback was typically available only to the GC. Colorado's new law extends that right down to the subcontractor level. If you're a sub working on Colorado projects of $150,000 or more, you now have a tool to get your money back without waiting for the entire project to close out.
If you already have an established bond program, qualifying for a retainage bond is typically straightforward. Your surety already knows your financial position and your track record. The retainage bond is issued under your existing program, and underwriting is based on the specific project and the amount of retainage being released.
Your surety will want to see:
For contractors without an existing bond program, the surety will evaluate you the same way they would for any contract bond — through your financial statements, experience, credit history, and project track record. If you're new to bonding, start with a consultation so we can walk through what you need and whether a retainage bond makes sense for your situation.
One thing to keep in mind: a retainage bond uses a portion of your aggregate bonding capacity. The bond amount counts against your total program limits. For most contractors, the trade-off is worth it because the improved cash flow and working capital from the retainage release can support higher capacity at your next review. But it's something your bond agent should evaluate with you before issuing the bond.
For more on how bond costs work, see our contractor bond cost guide.
Colorado isn't alone. Retainage reform is moving across multiple states as legislators recognize that traditional retainage practices put an unfair cash flow burden on contractors — especially subcontractors.
Virginia introduced SB165 in 2026, which would permit retainage bonds in construction contracts. Illinois has government contract retainage reform legislation in progress. Several other states already have statutes allowing contractors to substitute bonds for retainage on public projects, and the trend is accelerating.
The logic is consistent everywhere: retainage was designed to protect project owners, but a surety bond provides the same protection without locking up contractor cash. As more states adopt this approach, contractors who understand retainage bonds and have the bonding relationships in place will have a meaningful cash flow advantage over those who don't.
Grit Insurance Group is licensed in 21 states and works with contractors on surety programs nationally. If you're working in a state where retainage bond legislation is moving — or where it's already available — we can help you evaluate whether it makes sense for your projects.
When does Colorado HB26-1311 take effect?
The bill passed the Senate on April 7, 2026, and is headed to the Governor's desk. Once signed, the effective date will be specified in the enacted version. Check with your bond agent or the Colorado General Assembly website for the confirmed effective date.
Can a project owner refuse the retainage bond?
Under HB26-1311, the project owner must accept the bond if it meets the bill's standards. This is not discretionary — the owner is obligated to release the retainage once a qualifying bond is in place. On private projects not covered by the statute, acceptance depends on the contract terms.
How much does a retainage bond cost?
Retainage bond premiums are typically 1% to 3% of the retainage amount, depending on your financial profile, bond program, and the surety's assessment. On $100,000 in retainage, that's roughly $1,000 to $3,000 — a fraction of the cash you unlock. Rates vary, so contact your bond agent for a specific quote.
Does HB26-1311 apply to private construction projects?
The bill addresses construction contracts broadly, including the relationship between property owners and contractors. Review the enacted statute for specific applicability to your project type, and confirm with your bond agent whether a retainage bond is an option on your private project.
Do other states allow contractors to post bonds in lieu of retainage?
Yes. Several states already have statutes allowing retainage bonds on public projects, and the number is growing. Washington, Virginia, and Illinois are among the states with active retainage reform legislation. Requirements vary by state and project type — your bond agent can confirm what's available in the states where you work.
If you're a Colorado contractor working on projects of $150,000 or more, HB26-1311 gives you a new tool to improve your cash flow. A retainage bond lets you get paid for work you've already completed instead of waiting months or years for the project to fully close out.
At Grit Insurance Group, we work with contractors across 21 states on surety bond programs — including retainage bonds. We'll evaluate your current program, your project details, and the retainage amounts involved, and tell you straight whether a retainage bond makes sense for your situation.
Call us at (801) 505-5500 or email Surety@gritinsurance.com. Or start with a bond consultation — we'll walk you through it.