Retainage in construction
In the United States, retainage is an amount of money withheld from progress payments to ensure that the construction work is completed. It acts as an incentive for the supply chain to fulfil all of their obligations under a contract, and provides a reserve of money to be drawn on if they do not complete and have to be replaced. The UK equivalent is known as ‘retention’.
Clients can retain money from main contractors who can in turn retain money from subcontractors who can retain from sub-subcontractors, and so on.
The amount of retainage varies according to the project and the region but it is calculated as a percentage of each interim payment. Typically 5-10%, the exact amount, and conditions for its release, can be negotiated between owners, contractors and subcontractors prior to signing contracts. Public projects often require retainage to adhere to state laws.
Whilst retainage is usually only a small portion of the payments made as the work is carried out, it can amount to a sizeable total value that can be a strong incentive to complete. However, it also creates cash flow problems for the supply chain, and can take a long time to release. As a result retainage has come under some criticism.
It is important that retainage is a fair amount, and that it is equitable, that is, that the amount withheld from subcontractors by the main contractor should not be greater than the amount withheld from the main contractor by the client. In addition, clients should release the retainage promptly once the work has been completed and accepted; and similarly, the main contractor must make prompt payment of the retainage to subcontractors.
In some contracts, the percentage of retainage will decrease as the work progresses to reflect the fact that the likelihood of failure to complete has also decreased. If payments are not made promptly, interest may be charged.
As an alternative to retainage, the contractor may deposit securities, and any interest accrued is then paid to the contractor.
[edit] Related articles on Designing Buildings Wiki
- Building codes.
- Construction supply chain payment charter.
- Contract sum.
- Final account.
- Holdback.
- Interim certificate.
- Mechanic’s lien.
- Miller Act.
- Practical completion.
- Retention.
- Retention held in trust fund.
- Right to payment.
- Stop work order.
- Subcontractor default insurance (SDI).
- Substantial completion.
- Surety.
- The problems with retention.
Featured articles and news
Does the first Labour budget deliver for the built environment?
What does the UK Budget mean for electrical contractors?
Mixed response as business pays, are there silver linings?
A brownfield housing boost for Liverpool
A 56 million investment from Homes England now approved.
Fostering a future-ready workforce through collaboration
Collaborative Futures: Competence, Capability and Capacity, published and available for download.
Considerate Constructors Scheme acquires Building A Safer Future
Acquisition defines a new era for safety in construction.
AT Awards evening 2024; the winners and finalists
Recognising professionals with outstanding achievements.
Reactions to the Autumn Budget announcement
And key elements of the quoted budget to rebuild Britain.
Chancellor of the Exchequer delivers Budget
Repairing, fixing, rebuilding, protecting and strengthening.
Expectation management in building design
Interest, management, occupant satisfaction and the performance gap.
Connecting conservation research and practice with IHBC
State of the art heritage research & practice and guidance.
Innovative Silica Safety Toolkit
Receives funding boost in memory of construction visionary.
Gentle density and the current context of planning changes
How should designers deliver it now as it appears in NPPF.
Sustainable Futures. Redefining Retrofit for Net Zero Living
More speakers confirmed for BSRIA Briefing 2024.
Making the most of urban land: Brownfield Passports
Policy paper in brief with industry responses welcomed.
The boundaries and networks of the Magonsæte.
London Build Fire and Security Expo
20-21 Nov and now with new Ambassador Programme..