How to Navigate Retainage Challenges Part 1
Retainage has been the norm for construction projects for many years. Some feel it’s necessary to ensure the project is completed, but some view it as a hassle especially when it is abused by higher-tier construction professionals. In this two-part article, our Jacksonville construction lawyers will give construction professionals some insight on how to navigate the challenges associated with retainage. Read part two of our article to learn more.
What is Retainage?
In construction, owners and prime contractors withhold a predetermined percentage of each progress payment, called retainage, until a contractor or subcontractor completes “substantial” project work. It’s also not uncommon for subcontractors to withhold retainage from sub-subcontractors. Retainage is either governed by state laws on public projects or by contracts on private projects. Retainage is used by owners as an incentive for contractors to complete the project and to protect the owner from liens and more.
Where the Problem Lies
Shifting the risk down the contracting chain is nothing new. However, lower-tier parties should understand their rights as it pertains to mechanics lien law. Retainage can pose a problem for some subcontractors because after completing their required work, the retainage may be held until the completion of the entire project. If you are struggling to get payments owed to you, we recommend that you speak with a Jacksonville contractor lawyer to discuss your situation. Subcontractors and suppliers need to fortify themselves against abuse. Another issue revolves around cash flow and low profit margins, and retainage only adds to this problem.
Make Retainage Work for Everyone Involved
If you’re on a project where a retainage fee is necessary, be sure that it is equitable for all involved and that the percentage is within 5 to 10 percent. If a retainage is a must on a project, it’s only fair to shift the same percentage down chain. Additionally, the general contractor should avoid withholding retainage and release it as soon as work has been completed and approved.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.