3.__Line item retainage.__Payment and retention of payment on a public improvement project must be based on contract line items.__Contract line items for each project must be identified by the parties prior to the start of the project.__If payment is retained under this subsection, the amount retained may not exceed 5% of the payment for approved work on that line item.__An owner under this subsection is not obligated to make payment on a contract line item in the case of nonperformance on that line item.__When the owner determines that performance has been completed or corrected for that line item and has accepted the work on the line item, the owner must authorize release of retained payments at the next regular requisition meeting under the contract and pay in accordance with subsection 7.

4.__Value of line item.__At the end of the performance period for each contract line item, the owner may retain up to the last 5% of payments due to the general contractor on that line item.__ The total of any payments retained under this subsection and subsection 3 may not exceed 5% of the value of the line item.__ When work on the line item is accepted as complete by the owner, the owner must pay in accordance with subsection 7.

5.__Inspection; substantial completion and payment.__The general contractor shall notify the owner in writing when the project is substantially complete, and the owner shall inspect the project.__If the owner agrees that the project is ready for issuance of the substantial completion certificate, the owner shall establish jointly with the general contractor a punch list and a list of incomplete work remaining on the project, and the parties shall jointly assign dollar values to the items on those lists as follows: for punch list items, 150% of the value; and for incomplete items, 100% of the value.__Assignment of punch list and incomplete list values must occur not later than the next regularly scheduled inspection under the contract or as otherwise required by law.__At this time, a substantial completion certificate must be issued with the punch list, the list of incomplete work and the assigned item values attached.__ All retained payments except those for punch list or incomplete items or good faith claims as provided in Title 10, section 1118 must be authorized for payment as part of the current requisition, and payment must be made in accordance with subsection 7.

6.__Payment of final retainage.__The general contractor shall ensure that any punch list items and any incomplete items

identified on the list provided in accordance with subsection 5