This regulation applies to a construction contract for which a contractor has furnished 100 percent payment security and 100 percent performance security. The percent for retainage specified in a contract under §A of this regulation may not exceed 5 percent of the contract amount. In addition to retainage, a primary procurement unit and the Maryland Transportation Authority may withhold from payments otherwise due a contractor an amount that the unit reasonably believes is necessary to protect the State's interest. A contractor may not retain from a payment due a subcontractor a percent of the payment greater than the percent for retainage retained by the primary procurement unit or the Maryland Transportation Authority. A subcontractor may not retain from a payment due a lower-tier subcontractor a percent of the payment greater than the percent of payments retained from the subcontractor. A contractor and a subcontractor are not prohibited, by §§D and E of this regulation, from withholding an amount in addition to retainage if the contractor or subcontractor determines that a subcontractor's performance under the subcontract provides reasonable grounds for withholding the additional amount. This regulation applies to all construction contracts unless: The contract is funded in whole or in part with tax-exempt financing; or It conflicts with any federal grant or regulation affecting the contract. The invitation for bids, request for proposals, or the contract documents to be executed by a contractor shall include a form on which the contractor may elect to have retainage placed in an escrow account. A contractor's election on the use of an escrow account for retainage is not revocable. A contractor awarded a construction contract may elect to have retainage placed in an escrow account if the contractor: Elects that procedure on the form provided by the procurement agency; and Submits with the contract documents the escrow agreement provided by the procurement agency, executed by the contractor, the escrow agent, and, if applicable, the surety. The contractor shall select an escrow agent from among the banks approved by the State Treasurer for use by State agencies. The contractor is liable to the escrow agent for the payment of fees and charges in connection with the establishment and maintenance of the escrow account. Funds, other than retainage, withheld by the procurement agency, may not be paid to the escrow agent. Retained funds may be released only as directed by the procurement agency. At the time of final payment, the procurement agency shall direct the escrow agent to settle the escrow account by paying funds from the escrow account: To the procurement agency for any claim it may have against the contractor under the contract; Unless waived by the Board of Public Works, to the Comptroller for any claim over $50 against the contractor by the State, a unit, or a State-controlled governmental agency; and To the contractor. Until the escrow agent makes payment as directed, funds in the escrow account are State funds and are not subject to any liens. State Finance and Procurement Article, §§12-101, 13-225, and 15-108, Annotated Code of Maryland Effective date: July 9, 2001 (28:13 Md. R. 1216) Regulation .01C, D amended effective April 11, 2005 (32:7 Md. R. 685)