How does retainage work in construction?
Retainage is the withholding of a portion of the funds that are due to a contractor or subcontractor until the construction project is finished. It is meant to serve as a financial incentive and an assurance that the contractor will complete the project in a satisfactory manner.
How do you account for construction retainage?
When retainage is held back in each progress payment, the contractor must account for it in each pay app. This can be done by billing for the full amount of that payment, less the retainage and showing the new number in the final billing total.
What is the maximum amount of a progress payment that the contracting officer may withhold under a fixed price construction contract?
80 percent
Notwithstanding any provision of this contract, progress payments shall not exceed 80 percent on work accomplished on undefinitized contract actions.
What is a 10% retainage?
On a typical project, the retainage percentage is applied to each progress payment. So on a $100,000 contract with 10% retainage, the contractor doesn’t have to fork over ten grand at the beginning. Instead, the contractor will deduct the retainage from each payment application.
When should you bill retainage?
What Is Retainage? Also called “retention,” retainage is a percentage of a contract, often 5-10%, that can’t be billed until the entire project is complete and the client has approved the work. Its purpose is to give the client recourse if they aren’t satisfied with the work.
How much does a retention bond cost?
How much does a retention bond cost? Charges for retention bonds vary from between 0.4% of the bond value to 10% of the bond value and some Surety providers will ask for additional security from the contractor if they deem that the risk demands it.
How long can a contractor hold retention?
The first payment provides half the money held upon the subcontractor’s completion of their portion of the work. This is known as the first moiety of retention. The second moiety of retention is paid once the defects liability period has ended. This period can last anywhere from six months to over a year.
How much can you withhold from a contractor in California?
In the event that there is a good faith dispute over all or any portion of the amount due on a progress payment from the prime contractor or subcontractor to a subcontractor, then the prime contractor or subcontractor may withhold no more than 150 percent of the disputed amount.
How much can a contractor ask for up front in CA?
Contractors cannot ask for a deposit of more than 10 percent of the total cost of the job or $1,000, whichever is less. * (This applies to any home improvement project, including swimming pools.) Stick to your schedule of payments and don’t let payments get ahead of the completed work.
How much is retention usually?
How much is held in retention? Usually up to five percent of the total contract value is held by the head contractor until the subcontractor has completed the job and fixed any defective work.