Saturday, December 1, 2012

Holding Contractor Money (Retainage)



The purpose of Retainage is to hold back money from a contractor for incomplete or deficient work.  Ten percent (10%) appears to be the norm across the United States including Hawaii.

Retainage is held by prime contractors against subcontractors and/or by owners against prime contractors.

There is little or no reason to hold the Retainage once the work has been completed and accepted in accordance with the contract documents.

One technique I have successfully used is to include wording in the contract documents that “The contractor shall notify the owner in writing that all punch list inspection items are complete”.

Here is a definition of a Punch List found in my Glossary  "A list prepared by the owner or his/her authorized representative of items of work requiring immediate corrective or completion action by the contractor."

As the prime contractor or owner’s representative I would not hold or attend a punch list re-inspection for the project until the aforementioned notification has been received.

This practice tends to minimize, if not eliminates, incomplete punch list re-inspections and expedites the Retainage payment to the contractor because when all punch list items have been completed and accepted in accordance with the contract documents the contractor is entitled to submit a payment request for the Retainage amount.  And said payment should not be unreasonably withheld.   Usually contract documents include payment processing requirements such as “payments are due within 30 days of receipt, etc.”

This practice also tends to be fair to both owner and contractor.

4 comments:

  1. Excellent article. The Sub-contractors have not obtained Storage Expenses since before one year, the Sub-Contractors have been operating for the Companies specifically since that some time to have finished many agreements and have asked for transaction for the account balances of Storage being organised. The Contractor however is saying that they are examining the scenario but are saying that over payments have been created against some agreements and that is why they are having up payments of the retention Charges. Market Reports

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  2. Ross, thank you for the compliment and your much appreciated comment. The following is my understanding of your situation:

    1. The sub-contractor has incurred storage expenses for over a year and is now requesting payment for these expenses from the General Contractor;

    2. But the General Contractor is claiming to have over paid the sub-contractor for work completed in accordance with the contract documents; however

    3. The General Contractor is holding the sub-contractor's retention until the General Contractor completes an examination of the payments made to the subcontractor.

    Please tell me if this is a accurate understanding of the situation and I would be pleased to comment further.

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  4. Hi Gary, quick question: regarding residential construction in Hawaii, would you retain a portion of funds until the Notice of Completion has been published and 45-days has past? Of course, this will be a part of the contract. If so, how much would you retain from the contractor. Thank you.

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