These frequently asked questions address common issues that you’ll encounter when trying to stay ahead with the game. First, it’s abused to “stay ahead.”  It’s a common construction practice to underpay a contractor for work done on a job. If, for example, 30% of work is completed, the developer or GC will only pay 25% of the price. Food Truck Accounting This is done to “stay ahead” of the subcontractor, to further protect the owner or GC.

The Future of Retainage in Construction

The retained funds, often referred to as retention payable, are released once the project is deemed complete. This typically includes resolving any punch list items or defects and meeting all contractual requirements. In some cases, a portion of the retention may be released earlier, such as at the end of substantial completion. Retention billing involves the process of documenting and invoicing the retained and payable amounts. Contractors or subcontractors issue invoices that clearly indicate the total payment for work completed, the portion retained, and the net amount payable. This ensures transparency for all parties and helps track the retained funds throughout the project’s lifecycle.

Substantial Completion

For example, the G702 and G703 AIA-style documents include sections that prompt you to determine the actual amount that you receive minus retainage. Keeping track of retainage balances helps them forecast future income and manage expenses. Understanding the timing of when retainage will be released is also crucial in maintaining financial health. Construction projects can often involve complex timelines and budgets, making clear contract terms essential for smooth operation. In either case, the place for everyone to start is with the construction contract.

What is Retainage in Construction? The Ultimate Guide

The retainage definition is simple – it’s the percentage of a contract’s price that’s withheld from a contractor. Retainage is common in construction for both commercial and public projects, and the percentage typically ranges anywhere from 5 to 10% of the overall price. Retainage can significantly impact cash flow for both contractors and subcontractors. When retainage is withheld, it reduces the amount of cash available for operating expenses.

What are the Certified Payroll Requirements for Federal Construction Jobs?

With Planyard, you gain clear visibility into retained amounts at every stage of the project. The platform provides retainage in construction real-time updates on retention balances, invoices, and pending payments, making it easy to manage cash flow and plan finances effectively. By automating the retention process and centralizing financial data, Planyard not only saves time but also ensures transparency.

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. Before the construction contract is finalized and a job begins, every party should be clear on the details and expectations related to retainage. Things can easily be forgotten, misremembered, or misunderstood, so keeping written documentation of communications, invoices, and receipts is a must. Retainage is so commonplace because adjusting entries the upsides have such a high impact on project success. Firstly, retainage is a powerful quality assurance strategy that incentivizes the delivery of high-quality work.

• For example, the G702 and G703 AIA-style documents include sections that prompt you to determine the actual amount that you receive minus retainage.
• The trend towards public projects emphasizing fairer retainage practices may influence private projects as well.
• Trade contractors use Siteline to perfectly track all retainage so they never forget to bill for it.
• In contrast, Texas declares no such cap on retainage percentages for public projects.
• Payment management apps, for instance, make it easy to track job tasks and milestones.

Prime Contractors Can Withhold Retainage from a Subcontractor, but cannot Bill the Government for it

• Otherwise, subcontractors may be forced to wait until the entire project is finished, including work they are not responsible for.
• Typically, the filing of a notice of commencement by the property owner or other top-of-chain party affects preliminary notice and…
• So, if the contract between them provides for retainage, they are allowed to do so under the terms set forth, even if the government is not withholding retainage from the prime.
• Retainage practices are problematic because they cause practical issues and business relationship issues within the already-complicated accounting and payment systems of the construction world.
• But using QuickBooks Online (the standard for many subcontractors) isn’t enough as it doesn’t have true retainage management.
• When the contractor and the owner have opposing perspectives on the project’s completion, it is asserted that retainage can be misused, resulting in disagreements and payment delays.
• If the prime contract withholds 5% from the GC, the GC will often increase the withholding percentage for subcontractors.

You can’t get paid until you provide all of your close-out documents. So it’s important to know what documents will be required from the start. Collect them in a folder so you know where to find everything at the end of the project. Retainage terms typically allow payers to hold retainage until the end of the project or until a certain percentage of work is finished. A client may be entitled to withhold funds if the agreement allows it.

Legal

Retainage is generally 5 to 10% of each progress payment—though the exact retainage percentage 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. There is a certain amount of project costs that are retained for the project’s duration while the contractor is working.