Blueprint for Design

This post talks about the contractor’s payment process. We’ll be focusing on Retainage.

The design is ready to go and you have reviewed the contractor’s bids. The lowest qualified bidding contractor has been interviewed and you are ready to get your contract with them in place so you can start moving forward with the project…

Before finalizing your Owner-Contractor Agreement, you should make sure there is a provision for Retainage.

Retainage is exactly what it sounds like.  It is keeping an agreed percentage of every progress payment you make to the contractor, usually each month.  So, if a monthly payment request is for $30,000 and your agreed retainage is 10%, you deduct $3000 from the payment.  This deducted amount will get released to the contractor once the work is completed at the end of the project. Each payment you deduct retainage so the total withheld compounds until you release it to the contractor.  (This is a overly simplified explanation.)

Having retainage on a project is very common in the industry. It keeps a busy contractor interested in your project until it gets completed.  And, what’s the most difficult part of the project to finish? Usually, it is the last 10% of the job.  So, if a contractor has been working on a $100,000 addition, there is $10,000 of their money out there waiting for them to finish up.

Something to keep in mind is that you can not assume that a contractor will be okay with holding back on a pay application for retainage.  This should be discussed before a contract is in place and agreed upon by you and the contractor. This is a great topic for you to discuss with your architect before a miscommunication occurs in the middle of your project.

photo credit: alancleaver  2000