Creates the State Agency Retainage Act. Provides that, if a State agency determines that satisfactory progress has not been achieved by a contractor or subcontractor during any period for which a payment is to be made, a percentage of the payment may be retained by the State agency. Prohibits the amount of retainage under the Act from exceeding 10% of the amount of any and all draw amounts submitted and approved under the terms of the contract until the contract is 50% completed. Prohibits retainage of more than 5% of the contract of the amount of any and all draw amounts submitted and approved under the terms of the contract for the duration of the contract. Authorizes retainage to be adjusted as the contract approaches completion to recognize better than expected performance, the ability to rely on alternative safeguards, and other factors. Further provides that on completion of all contract requirements, amounts retained under the Act must be paid promptly. Defines the terms "retainage" and "State agency". Amends the State Prompt Payment Act. Specifies that the State Prompt Payment Act does not apply to retainage withheld under the State Agency Retainage Act.