Sec. 1. 5 MRSA §1746, as amended by PL 1989, c. 483, Pt. A, §19, is further amended by inserting at the end a new paragraph to read:

This section is repealed January 1, 2008.

Sec. 2. 5 MRSA §1746-A is enacted to read:

§1746-A.__Retainage in public improvement construction contracts

1.__Definitions.__As used in this section, unless the context otherwise indicates, the following terms have the following meanings.

A.__"Designer" means the architect, engineer or interior design professional designated by contract documents to design a public improvement or to provide contract administration for the owner.

B.__"Punch list" means an inventory of work that remains deficient or incomplete after substantial completion.__A punch list includes reasonable estimates of cost for correction or completion of the work contained on the list.__ Deficiencies discovered after acceptance of the work are not punch list items but may be covered by warranty or contract obligations.

C.__"Substantial completion" means the stage in the progress of a public improvement when the work or a designated portion thereof is sufficiently complete in accordance with the contract documents that the owner can occupy or use the public improvement for its intended use.

2.__Retainage.__In any contract awarded for a public improvement, the owner of a public improvement may retain 5% of the money due the contractor until substantial completion of the work.__At substantial completion, the owner and the contractor shall inspect the work and prepare a punch list.__The owner may thereafter withhold for defective or incomplete work only those funds that are sufficient to account for 1.5 times the value of punch list work.__As punch list work is completed, the retainage held by the owner must be correspondingly reduced.__Funds may not be retained in anticipation of warranty claims but may be retained as directed by the contractor's surety or as necessary to account for liquidated damages or other contract defaults as determined by the designer.