Iowa SF 574 and SF 2365: three percent retainage on public jobs, and a notice of final acceptance

What changed: five percent became three

Senate File 574 is one page long. Its title:

SF 574, title

AN ACT relating to retention of fees for public improvement contracts.

It rewrites two parts of chapter 573:

SF 574, section 1

Section 1. Section 573.12, subsection 1, paragraphs a and b, Code 2025, are amended to read as follows:

SF 574, section 2

Sec. 2. Section 573.13, Code 2025, is amended to read as follows:

Before the act, the 2025 Iowa Code set the public corporation's limit at five percent of each monthly payment, and a contractor's limit on what it holds from a sub at the lesser of five percent or what the subcontract says:

Iowa Code 2025, 573.12(1)(a), second sentence, before SF 574

The public corporation shall retain from each monthly payment not more than five percent of that amount which is determined to be due according to the estimate of the architect or engineer.

Iowa Code 2025, 573.12(1)(b), before SF 574

b. The contractor may retain from each payment to a subcontractor not more than the lesser of five percent or the amount specified in the contract between the contractor and the subcontractor.

The retained fund itself was capped the same way:

Iowa Code 2025, 573.13, before SF 574

573.13 Inviolability and disposition of fund. A public corporation shall not be permitted to plead noncompliance with section 573.12 and the retained percentage of the contract price, which in no case shall be more than five percent, constitutes a fund for the payment of claims for materials furnished and labor performed on the improvement and shall be held and disposed of by the public corporation as provided in this chapter.

The 2026 Iowa Code, which carries the act, reads three percent at each of those points:

Iowa Code 2026, 573.12(1)(a), after SF 574

a. Payments made under contracts for the construction of public improvements, unless provided otherwise by law, shall be made on the basis of monthly estimates of labor performed and material delivered, as determined by the project architect or engineer. The public corporation shall retain from each monthly payment not more than three percent of that amount that is determined to be due according to the estimate of the architect or engineer.

Iowa Code 2026, 573.12(1)(b), after SF 574

b. The contractor may retain from each payment to a subcontractor not more than the lesser of three percent or the amount specified in the contract between the contractor and the subcontractor.

Iowa Code 2026, 573.13, after SF 574

573.13 Inviolability and disposition of fund. A public corporation shall not be permitted to plead noncompliance with section 573.12 and the retained percentage of the contract price, which in no case shall be more than three percent, constitutes a fund for the payment of claims for materials furnished and labor performed on the improvement and shall be held and disposed of by the public corporation as provided in this chapter.

The official session law prints each old word struck through beside its replacement, and a plain copy of it cannot show which is which, so the before and after here are quoted from the 2025 and 2026 editions of the Code instead. Both are on the Legislature's site:

Read both editions: Iowa Code 2025, archived volume (a large PDF) and Iowa Code 2026, chapter 573legis.iowa.gov

Who it covers: public improvements, not private jobs

Chapter 573 is about public improvements, and it defines both of the terms that decide that:

Iowa Code 573.1(3)

3. “Public corporation” shall embrace the state, and all counties, cities, public school corporations, and all officers, boards, or commissions empowered by law to enter into contracts for the construction of public improvements.

Iowa Code 573.1(4)

4. “Public improvement” is an improvement, the cost of which is payable from taxes or other funds under the control of the public corporation, except that in cases of public improvement for drainage or levee purposes the provisions of the drainage law, chapter 468, in cases of conflict shall govern.

So the three percent cap binds a public corporation on an improvement paid for from taxes or other funds it controls, and a contractor holding back from its subs on that job. A private job is not a public improvement under these definitions, and this page did not look at whether any other Iowa law limits retainage on one.

The chapter also steps aside for some federally funded work:

Iowa Code 573.14(2), in part

This chapter does not apply if the public corporation has entered into a contract with the federal government or accepted a federal grant which is governed by federal law or rules that are contrary to the provisions of this chapter.

What the text leaves open: paragraph b names a contractor holding back from a subcontractor. It does not name a sub holding back from a lower tier sub, and it does not say whether three percent reaches that link. The first sentence of paragraph a, on monthly payments, carries the words “unless provided otherwise by law”, and this page did not search the rest of the Iowa Code for a law that provides otherwise.

From when: July 1, 2025 for the cap, July 1, 2026 for the notice

Neither act states a date of its own. For an act like these, the date comes from section 3.7 of the Iowa Code:

Iowa Code 3.7(1)

1. All Acts and resolutions of a public nature passed at regular sessions of the general assembly shall take effect on the first day of July following their passage, unless some other specified time is provided in an Act or resolution.

Each act is marked approved at its foot, SF 574 in April 2025 and SF 2365 in May 2026:

2025 Iowa Acts, Chapter 29, foot of the act

Approved April 25, 2025

2026 Iowa Acts, Chapter 1094, foot of the act

Approved May 15, 2026

The Legislature's list of Iowa Acts puts each one in that year's regular session:

legis.iowa.gov, Iowa Acts chapter list, 2025 session

Iowa Acts Chapters - 91 (2025 Regular GA) Chapter 29 SF 574

The list's heading, then, further down the list, the row for this act: its chapter number and bill. The rows in between are left out.

legis.iowa.gov, Iowa Acts chapter list, 2026 session

Iowa Acts Chapters - 91 (2026 Regular GA) Chapter 1094 SF 2365 Notice requirements for final acceptance of public improvements

The list's heading, then, further down the list, the row for this act: its chapter number, bill and title. The rows in between are left out.

Where those chapter lists are: Iowa Acts chapter list, 2025 session and Iowa Acts chapter list, 2026 sessionlegis.iowa.gov

Each was passed before it was approved, so the first day of July following its passage is July 1, 2025 for SF 574 and July 1, 2026 for SF 2365. The rule for an act approved on or after July 1 is different, and it does not apply to either, because both were approved before July 1:

Iowa Code 3.7(2), first sentence

2. All Acts and resolutions of a public nature which are passed prior to July 1 at a regular session of the general assembly and which are approved by the governor on or after July 1, shall take effect forty-five days after approval.

Read section 3.7: Iowa Code 2026, chapter 3 (section 3.7)legis.iowa.gov

Neither act says whether it reaches a contract let before its date. A contract signed before July 1, 2025 may still say five percent, and the text does not settle which figure governs it.

SF 2365: the notice of final acceptance, word for word

The second act is also one page:

SF 2365, title

AN ACT relating to public improvement contracts, including notice requirements.

SF 2365, section 1

Section 1. Section 573.16, subsection 1, Code 2026, is amended to read as follows:

In the act, the existing words of subsection 1 become paragraph a, and a new paragraph b follows. Paragraph a is the window for a suit over the retained fund, and it reads as it did before. The 2026 Code prints it this way:

Iowa Code 2026, 573.16(1), before SF 2365

1. The public corporation, the principal contractor, any claimant for labor or material who has filed a claim, or the surety on any bond given for the performance of the contract, may, at any time after the expiration of thirty days, and not later than sixty days, following the completion and final acceptance of said improvement, bring action in equity in the county where the improvement is located to adjudicate all rights to said fund, or to enforce liability on said bond.

The new paragraph b:

Iowa Code 573.16(1)(b), new, from SF 2365

b. No later than fourteen calendar days after final acceptance of the improvement, the public corporation shall send to the principal contractor, the surety on any bond given for the performance of the contract, and any claimant for labor or material who has filed a claim, a written notification of the date of the public corporation’s final acceptance of the improvement. The public corporation shall not be liable for any claims or damages based on or arising out of the public corporation’s failure to comply with this paragraph.

The date of final acceptance matters because two clocks run from it. The fund is held for thirty days after completion and final acceptance, and the window for a suit opens thirty days after that same date:

Iowa Code 573.14(1), first sentence

1. The fund provided for in section 573.13 shall be retained by the public corporation for a period of thirty days after the completion and final acceptance of the improvement.

What the text leaves open: the act gives a contractor nothing if the notice never comes, because its last sentence says the public corporation is not liable for failing to send it, and it does not say whether a late notice moves either clock.

Between them, the quotes on this page carry every paragraph the two acts rewrote, as it reads after the change, and each is checked against a saved copy of the Legislature's text when this page is built. Read the two acts there:

Read the law: 2025 Iowa Acts, Chapter 29 (SF 574) and 2026 Iowa Acts, Chapter 1094 (SF 2365)legis.iowa.gov

What to do differently

Only what the text supports:

• On an Iowa public improvement contract, check the retainage figure. The Code now says not more than three percent of each monthly payment for the public corporation, and not more than the lesser of three percent or the subcontract figure for a contractor holding from a sub.
• If you are a sub, read your subcontract's retainage figure. The contractor can hold the lesser of three percent and that figure, so a subcontract figure below three percent is the one that counts.
• For a contract signed before July 1, 2025, the acts do not say whether three percent or five applies. Do not assume either.
• Watch for the notice. From July 1, 2026, the public corporation has to send written notice of the date of final acceptance within fourteen calendar days after it, to the principal contractor, the surety and any claimant who has filed a claim.
• Do not wait for the notice to start counting. The act says the public corporation is not liable if it fails to send it, and the window for a suit over the retained fund runs from completion and final acceptance, not from the notice.
• On a private job in Iowa, chapter 573 does not apply. This page does not cover what does.

Questions people ask

What is the maximum retainage on an Iowa public project?

Three percent. Iowa Code 573.12(1)(a) lets the public corporation retain not more than three percent of each monthly payment, and 573.13 says the retained percentage of the contract price shall in no case be more than three percent. It was five percent before SF 574 took effect on July 1, 2025.

Does the three percent cap apply to private construction in Iowa?

No. Chapter 573 governs public improvements, which 573.1 defines as improvements whose cost is payable from taxes or other funds under the control of the public corporation. This page did not look at whether another Iowa law limits retainage on a private job.

Can a general contractor hold five percent from a sub on an Iowa public job?

Not under the amended section. 573.12(1)(b) now lets the contractor retain from each payment to a subcontractor not more than the lesser of three percent or the amount the subcontract specifies. The acts do not say whether that reaches a contract signed before July 1, 2025.

When did SF 574 take effect?

July 1, 2025. The act states no date, so Iowa Code 3.7(1) applies: an act passed at a regular session takes effect on the first day of July following its passage. The session law is marked approved April 25, 2025.

What happens if the public body never sends the SF 2365 notice?

The act does not give the contractor a remedy. The new 573.16(1)(b) says the public corporation shall not be liable for any claims or damages arising out of its failure to comply. The thirty day hold under 573.14 and the window for a suit under 573.16(1) are counted from completion and final acceptance, not from the notice.

Retainage calculator: what is held, what is payable, what is left at closeout · Iowa lien waiver rules under 572.33A and 572.4, a different chapter from the public job retainage rules

Other state changes to how contractors get paid are on the construction law changes page.

This page quotes 2025 Iowa Acts, Chapter 29 (SF 574) and 2026 Iowa Acts, Chapter 1094 (SF 2365), amending Iowa Code sections 573.12, 573.13 and 573.16 and explains what it says. It is not legal advice, and a statute can be amended. Read the linked section before you rely on it.