(a) The state or a political subdivision of the state shall pay to the prime contractor interest on retainage, including warranty retainage, on a contract for public construction or public works at an interest rate that is equal to the amount set out in AS 45.45.010(a). Interest on retainage accrues from the date of approval of a pay request until the date of payment to the contractor.
(b) A political subdivision that has a population of 500 or less is exempt from the payment of interest under (a) of this section.