Retainage may be fixed or variable, depending on the terms of the contract. With a fixed percentage, typically in the 5% to 10% range, the same percentage of the total amount due is held back from each payment. With variable retainage, the percentage can change based on the stage of project completion. For example, a 10% retainage could drop to 5% after a project is considered halfway done. This elevated the demand for contractors in the mid-19th century labor market. Many of the people who filled the void lacked necessary experience, qualifications and skill sets to complete their jobs properly.

• After surveying private company stakeholders before the meeting on 16 potential agenda items, the PCC staff has agreed to research the following four topics.
• Many private companies question whether the benefits of applying CECL to these assets justify the costs.
• When examining and agreeing to a budget for your next construction project, whether public or private, there are certain factors to consider as a contractor.
• The earlier you receive the full amount payable to you after the completion of the project, the better.
• If they leave without warning, having to unexpectedly replace contractors and other workers was time-consuming and expensive.

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This is used to ensure that a project is completed on schedule and to a high standard. The retainage is usually paid to the contractor, who subsequently distributes it to subcontractors after the project is fully completed. Retainage is generally 5 to 10% of each progress payment—though the exact retainage percentage retainage in construction will be agreed upon by the parties ahead of time, and stipulated in the contract. Progress payments are fractions of the full fee paid out periodically while the construction project is ongoing. This is an important distinction that contractors should keep in mind to avoid cash flow issues during the project.

Map of Retainage Rules Across United States

Contractors need to understand all of their rights, responsibilities, and options when it comes to negotiating retention, and collecting it after the job is done. A mechanics lien is perhaps the most powerful tool that contractors have to force payment. It can be used on any outstanding payment for work or materials already supplied, including retainage. Though retainage is largely dependent on the contract itself, there are state and federal laws that govern retainage, too.

How Much Should a Retainer Fee Be?

• Retainage is an amount of money withheld from payment to a contractor or subcontractor until the end of the construction project, or a time specified in the contract.
• Early release from detention is possible, but it depends on your contract.
• Retention can be highly taxing on your operations when you’re first starting, especially on large-scale initiatives.
• So, if the claim is not settled and the owner doesn’t pay the contractor, the lien may lead to foreclosure of the property, forcing the owner to sell it and satisfy unpaid GC’s debt.
• There are different state laws concerning how to file a mechanic’s lien for retainage so check with your state to make sure you are filing correctly.

That’s why project owners typically use retainage, especially for large projects. Contractors who have money withheld by the project owner should also use retainage with their subcontractors to mirror the protection that the owner has established. Passing retainage down the line helps contractors better manage cash flow and incentivizes subcontractors to complete their portions of the job. Other best practices for construction accounting can help contractors and subcontractors reduce the burden of held back funds.

Credit losses — short-term trade receivables and contract assets

• The agreed-on terms of a construction contract dictate the specifics of retainage, such as percentage withheld, how much is withheld with each payment and when the funds can be released.
• If you’ve already sent reminders for unpaid invoices to the GC, and they’re still unresponsive, consider sending them a notice of your intent to file a mechanic’s lien.
• Additionally, certain states allow contractors and subcontractors to use securities instead of retainage.
• Began to withhold 20% of contractors’ payments as security to ensure a project’s completion.
• But over the course of the project, that money adds up to a strong incentive for a contractor to finish the job.
• The client will then do a visual inspection of the project and list down what needs to be worked on in order to give approval for the payment.
• For this reason, it’s crucial to learn your state’s retainage laws by heart.

If they still don’t send your payment, filing the lien is your last resort. Most states require you to file a lien within 30 to 120 days of completing work on a project. Plus, in order to establish your lien rights, you must first file a preliminary notice. If the project isn’t going to be finished until six months after you finish your portion, your retention payment may not be due until long after your lien rights expire. Some subs submit the final pay app and just wait to get their retainage. Treat retention payments like any other payment you’re trying to collect.

• Each state can govern retainage as much or as little as they see fit.
• Passing retainage down the line helps contractors better manage cash flow and incentivizes subcontractors to complete their portions of the job.
• In working on closing out the current project, document everything that has been done in the course of the project.
• As they wait to receive their full fees for one project, they still must pay their employees their full wages, make insurance payments, buy supplies and equipment and finance new projects.
• Sound contracts and well-stated milestone requirements help retainage.

If stated in the contract, withheld percentages can also change throughout the project. But, if milestones aren’t being met on time, the retainage terms can increase. For public projects, the retainage percentage usually ranges between 5% and 10%. So, all contractors must be sure to understand a contract before agreeing to a project.

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