HB 26-1311 gives contractors and subcontractors a new way to recover cash retainage. But can that statutory right be waived in a construction contract?
Colorado’s General Assembly has once again changed the rules governing retainage on private construction projects. With the passage of House Bill 26-1311, effective August 12, 2026, contractors and subcontractors now have a statutory mechanism to substitute a qualifying surety bond for cash retainage.
Colorado’s construction industry has long struggled with the timing of retainage payments, particularly for subcontractors whose work is completed early in a project. Although Colorado’s 2021 legislation generally limited retainage to five percent on covered private construction contracts, it did not establish a corresponding deadline for releasing those funds. Indeed, C.R.S. § 38-46-103(2) expressly preserved contractual provisions governing payment timing, including final payment and conditions precedent to payment. As a result, subcontractors could complete their work yet wait months or even years to recover their retainage while the overall project continued toward completion and final acceptance. Unlike public construction contracts, which are subject to statutory prompt-payment requirements under C.R.S. § 24-91-103, private construction contracts generally remained governed by their negotiated payment terms. H.B. 26-1311 addresses that gap by allowing contractors and subcontractors to substitute a qualifying surety bond for cash retainage.
The new law offers a potential solution. Rather than allowing an upstream party to continue withholding cash retainage, a contractor or subcontractor may tender a qualifying retainage bond. If the bond satisfies the statutory requirements, the upstream party must accept it and release the retainage covered by the bond.
That sounds straightforward enough. But the legislation raises an important question: Can a general contractor require its subcontractors to waive their statutory right to substitute a retainage bond?
For contractors accustomed to negotiating master subcontract agreements containing waivers of statutory payment protections, this is not merely an academic question. It goes directly to how Colorado construction contracts should be drafted after H.B. 26-1311. Interestingly, the issue was expressly discussed during the legislative hearings.
What H.B. 26-1311 Actually Changes
Colorado has historically permitted retainage on private construction contracts, subject to statutory limitations. In 2021, the General Assembly reduced permissible retainage on covered private projects from ten percent to five percent. Although that legislation limited the amount that could be withheld, it did not resolve the timing problem. Subcontractors completing their work early in a project could still find their retainage tied to completion of the overall project, potentially years later.
H.B. 26-1311 addresses that problem by amending C.R.S. § 38-46-103. Under the new provisions, a contractor or subcontractor may tender a qualifying retainage bond in lieu of cash retainage. Section 38-46-103(1)(b)(I) provides that if a contractor or subcontractor tenders a bond satisfying the statutory requirements, the property owner, contractor, or subcontractor ‘shall accept’ the bond and release the covered retainage.
The word ‘shall’ matters. The statute does not merely authorize the parties to negotiate a bond-substitution arrangement. It imposes an affirmative acceptance obligation when the statutory requirements are satisfied. The bond must comply with specified requirements concerning its amount, form, and surety. The legislation also preserves applicable claims against bond proceeds, including mechanics’ lien claims.
Under subsection (1)(b)(V), when a property owner accepts a retainage bond from a contractor, that contractor must accept a like bond from a subcontractor tendering one under the statute. The law applies to contracts created on or after August 12, 2026.
H.B. 26-1311 does not abolish retainage or require every contractor to purchase a bond. It creates a statutory alternative to withholding cash, but the statute does not expressly address whether that alternative may be waived by agreement.
Colorado Generally Permits Parties to Waive Statutory Rights
Colorado courts have long recognized that parties may contractually waive statutory rights, subject to important limitations. In Armed Forces Bank v. Hicks, 2014 COA 74, commercial guarantors had prospectively waived statutory protections relating to a lender’s foreclosure bid and deficiency judgment. The Colorado Court of Appeals enforced the waiver.
The decision reflects Colorado’s respect for freedom of contract, particularly where sophisticated commercial parties allocate financial risks through agreements. That principle supports the argument that a subcontractor may waive the retainage-bond substitution right.
The new legislation does not expressly prohibit waiver. That omission is significant when compared with other Colorado construction statutes. For example, Colorado’s Homeowner Protection Act, C.R.S. § 13-20-806(7), expressly invalidates certain waivers or limitations of residential construction defect rights and remedies. The General Assembly knows how to prohibit waivers when it intends to do so. But the absence of an express prohibition is not necessarily dispositive.
A Construction-Specific Case Supporting Contractual Waiver
Perhaps the most interesting authority supporting contractual waiver is In re Village Homes of Colorado, 405 B.R. 479 (Bankr. D. Colo. 2009). The case involved Colorado construction subcontracts containing an express waiver of rights under the Colorado Mechanics’ Lien Trust Fund Statute, C.R.S. § 38-22-127.
The bankruptcy court rejected the argument that the waiver was necessarily unenforceable as contrary to public policy. It recognized that statutory protections may be waived by their intended beneficiaries where the waiver does not improperly undermine independent rights of others or sufficiently important public policy interests. The court considered that property owners retained independent statutory protections.
Village Homes is particularly relevant because it involved actual construction subcontracts. Nevertheless, it is a federal bankruptcy decision, not binding Colorado appellate authority, and it addressed the issue on a motion to dismiss. Moreover, the trust-fund statute and the retainage-bond statute impose different obligations. Even with these limitations, Village Homes provides meaningful support for the argument that subcontractors can waive some statutory construction protections.
But the Colorado Supreme Court Has Drawn a Line: Poudre School District v. Stanczyk
The strongest argument against a mandatory contractual waiver comes from Poudre School District R-1 v. Stanczyk, 2021 CO 57. Although the case involved public school employment rather than construction, its reasoning matters.
Colorado law allowed qualifying teachers to transfer nonprobationary status to another district. The statute gave teachers the choice to request portability and required the hiring district to grant it when statutory requirements were met. Poudre School District required applicants to waive that right as a condition of employment.
The Colorado Supreme Court held that the mandatory waiver was invalid. It recognized the general rule permitting waiver of statutory rights but emphasized that a statutory election cannot necessarily be defeated through a mandatory contractual condition. The court distinguished such compulsory waivers from voluntary, arm’s-length negotiations, expressly leaving room for the latter.
The parallel to H.B. 26-1311 is evident: a protected party may elect a statutory benefit, and the other party must honor the election. Neither statute expressly forbids waiver. A subcontractor challenging a mandatory retainage-bond waiver could invoke Stanczyk, while a GC would distinguish public employment from negotiated commercial construction contracts. Both arguments have substance.
The Legislative History: The Waiver Question Was Actually Raised
The possibility of contracting around H.B. 26-1311 was expressly discussed during committee hearings. At the March 18, 2026, House Business Affairs and Labor Committee hearing, Representative Camacho asked Michael Gifford of Associated General Contractors of Colorado why a GC could not simply prohibit subcontractors from presenting retainage bonds in its subcontracts. Gifford called that an ‘untested’ theory because the contract would conflict with a statute requiring acceptance. (House hearing transcript, approximately 43:26–44:06.)
At the March 31, 2026, Senate Finance Committee hearing, Senator Marc Snyder, one of the Senate sponsors, repeatedly characterized the legislation as voluntary and emphasized freedom of contract. He indicated that parties could contract around the surety-bond option and preserve traditional retainage arrangements. (Senate hearing transcript, approximately 2:40–2:41, 2:47–2:48, and 3:40–3:41.)
But the testimony was not one-sided. Subcontractor Luke Miller described lengthy, attorney-drafted GC subcontract forms, rejected proposed changes, and the practical risk of losing work if a subcontractor insisted on different terms. (Senate hearing transcript, approximately 3:06–3:07.) Legislators also raised concerns that contractual loopholes could undermine the bill.
These statements demonstrate that the issue was before legislators. They do not establish a uniform legislative understanding. Individual sponsors’ statements do not override enacted text, but Snyder’s repeated comments are meaningful evidence supporting contractual flexibility. The statute’s mandatory wording and cash-flow objectives support the counterargument.
Mandatory Waiver Versus Negotiated Waiver
In our view, the most important practical distinction is between an across-the-board waiver and a genuinely negotiated one.
Suppose a GC revises its standard MSA to require every subcontractor to waive all rights under C.R.S. § 38-46-103(1)(b), without negotiation. When a subcontractor later tenders a qualifying bond, the GC refuses to release retainage. The subcontractor has a meaningful Stanczyk argument: a mandatory condition of contracting has deprived it of the statutory election.
Now suppose a GC and an established commercial subcontractor negotiate the payment and security terms of a specific project. The subcontractor expressly agrees to cash retainage in exchange for identifiable consideration, with the statutory right clearly identified. The GC has a stronger argument that the waiver reflects a voluntary commercial bargain, supported by Hicks, Village Homes, and the distinction preserved in Stanczyk.
Neither hypothetical guarantees an outcome. Stanczyk does not make every standard-form commercial provision involuntary, and a voluntary waiver might still be invalid if a court finds it contrary to the statute’s public policy. Nonetheless, negotiation and the specific terms will likely matter.
Does a Bond Protect the Same Interests as Cash Retainage?
Cash retainage and a retainage bond both provide security, but they operate differently. Cash gives the upstream party direct control of withheld funds, subject to contractual and legal limits. A bond replaces that cash with a surety obligation; resolving a bond claim may require investigation, negotiation, or litigation.
During hearings, proponents emphasized the surety’s underwriting and contractors’ incentives to preserve future bondability. Opponents worried that recovering against a surety could be slower and less predictable than applying cash retainage. These concerns illuminate the statute’s policy choice: balancing prompt access to earned funds against the upstream party’s interest in security for completion and correction.
A court could regard that balance as an industry-wide mandatory protection. Alternatively, it could find that sophisticated parties may negotiate their preferred security arrangements, particularly when third-party statutory rights remain intact. This is the tension the courts will eventually need to resolve.
What Should Colorado Contractors Do Now?
General contractors should review MSAs and project-specific subcontract forms. A generic waiver of ‘all statutory payment protections’ may be less defensible than language specifically addressing the retainage-bond right. Any proposed waiver should be evaluated for genuine negotiation and accompanied by a fallback framework that complies with the statute if the waiver is unenforceable.
Contractors should also preserve appropriate remedies for defective work, warranties, default, indemnity, and incomplete performance, and establish lawful procedures for verifying bond qualifications and documentation. Those procedures should not impose extra barriers designed to defeat the statutory election.
Subcontractors should examine MSA and project-level waiver language, assess premiums and surety underwriting requirements, and consider whether an older MSA governs new contracts subject to the law. Owners and developers should coordinate prime contracts, lender covenants, subcontract terms, and retainage funding arrangements to avoid upstream/downstream mismatches.
Finally, the effective-date language matters: the statute applies to contracts created on or after August 12, 2026. Whether later work orders, amendments, or project-specific agreements under an earlier MSA are new contracts may become a threshold dispute.
Conclusion: Can You Contract Around Colorado’s New Retainage Bond Law?
H.B. 26-1311 gives Colorado contractors and subcontractors a meaningful new option for accessing retainage. It also presents an unresolved question about the limits of contractual freedom.
The statute mandates acceptance of qualifying bonds, but contains no express anti-waiver provision. Hicks and Village Homes support enforcing certain commercial and construction-related statutory waivers. Stanczyk cautions that a statutory election cannot necessarily be eliminated through a mandatory, nonnegotiable contractual condition. The legislative hearings confirm that lawmakers heard the precise question and that a principal sponsor repeatedly emphasized freedom of contract, while other testimony highlighted the risk of boilerplate circumvention.
For now, parties should not assume either that every waiver is enforceable or that all waivers are prohibited. The outcome may turn on statutory purpose, contract language, the circumstances of negotiation, and the rights of others. In construction law, the question is not merely what the parties agreed to, but what the legislature permitted them to agree to.