Discover the Effective Progress Billing Sample for Legal

Progress billing sample for Legal

If you’re in construction, you’re familiar with retainage. Retainage is subject to complicated regulations and the practice is frequently abused. As someone working on a construction project, what are the best practices for retainage and how can you make sure you get retained money back?  Retainage, also called “retention,” is an amount of money “held back” from a contractor or subcontractor during the term of a construction project. Most construction contracts mandate that a certain percentage of the contract price, often 5% to 10%, must be withheld until the entire project is substantially complete. As a result, typically, every progress payment is discounted by 5 to 10%, then the amounts that were withheld during the life of the project are paid out at the end.   Retainage is withheld as a way to safeguard against future problems with the project. When there are disputes over the work being done, having a retainage account will help serve as a buffer from unexpected issues. Plus, it encourages everyone on the job to see the project all the way through. If they don’t, then they’d be leaving a lot on the table - retainage often represents or even exceeds the entire profit margin on the job.  Naturally, the practice of retainage creates issues, and these issues vary depending on your point of view. If you’re a property owner, developer, or general contractor, you may be thinking about how to hold onto retainage as long as possible to protect yourself and to encourage project participants. If you’re a contractor, you may be thinking about how to avoid having excess retainage withheld and how to make sure retainage gets released on time.  In either case, everything starts with the contract. If retainage is not specifically addressed in the construction contract, then it typically shouldn’t be withheld - even where retainage is allowed by law. It’s pretty common for the parties to include some retention provisions within their construction contracts. But, the amount of retainage that can be withheld is often limited by state law - so, it’s not always simply a matter of what’s in the contract.  Now, let’s go over the legal limitations on how much and for how long retainage can be withheld.  Retainage is treated differently depending on who owns the project. Privately owned projects often have different rules than projects owned by a state or local entity. And, federal projects are their own category. This map provides some background on retainage limitations for private projects in every state. Retainage limits change relatively often, though, so follow this link for Levelset’s most up to date retainage information. In states where there isn’t a legal limit for retainage amounts, there might not be a specific number than can’t be crossed - but retainage amounts, in practice, still tend to be reasonable. And again, retainage must follow the contract. Public projects will often mirror the retainage limits on private construction jobs in the same state, but not always. Typically, retainage will still max out at 5 to 10% for these jobs. But, to be sure what’s allowable, it’s important to double check your state’s requirements. For federal construction projects, retainage may be withheld - but retainage can only be withheld if it’s specifically addressed in the contract. Again, the maximum here is typically something like 10%. Ok. So there are limitations on retainage amounts. But how long should the money be withheld? First, note that the timeframe for receiving retainage payments will often depend on your role on the project. Owners will release retainage to their general contractors, then the GC will release retainage to their subcontractors, and so on down the payment chain.  So, the timeframe for receiving retainage will depend on a number of different factors - particularly, when your customer receives payment. Naturally, for sub-subcontractors and parties further down the payment chain, retainage tends to come slowly.  Many states will set deadlines though. For example, a California contractor must release retainage payments to their subcontractor within 10 days of receiving payment, themselves. Just like limitations on retainage amounts, retainage timeframes may also depend on what’s in the contract. Not every state sets a specific timeframe for releasing retainage. And, some states simply require retainage be released within a “reasonable time”. As for federal projects - retainage timeframes will depend on what’s in the contract. By and large, retainage must typically be released to the general contractor shortly after project completion. Usually, this is something like 30 to 60 days after project completion. Though, if there’s a dispute at any level in the payment chain - regarding payment, the work performed, the schedule, whatever the case may be - retainage will be slowed. It’s also worth mentioning that some states will require the partial release of retainage at a certain milestone in the project. For example, under Pennsylvania’s retainage laws for public projects, half of the retained funds must be released once the project is 50% complete. And, just like final retainage payments, there may be a deadline for contractors to pass retainage to their subcontractors as well. Recovering retainage payments can be tricky. Unfortunately, many owners, contractors, and other customers will be slow to release retainage - and some may even abuse retainage practices. If you’re being slow paid on retainage, or if payment isn’t coming at all, there are typically a few options for recovery.  To start, the typical less-formal recovery options will be available. Things like invoice reminders and even demand letters can help to get paid when a customer is slow to release payment. Making things a little more serious, a threat to file a mechanics lien or bond claim can often work to get payment talks moving in the right direction. When a customer, project owner, or surety knows that a claim might be filed, they’ll typically want to avoid a potential claim. Further, a threat to file a lawsuit can do the trick, too. This is especially true in a state that has retainage laws on the books. Typically, those laws will include interest penalties, which raise the stakes for a nonpaying customer. If necessary, making a formal claim for recovery can get the job done. On privately owned projects, retainage can generally be included in a lien claim. Retainage represents amounts that are owed for work already performed - so, much like any other unpaid amounts, retainage can typically be liened. The same is true for bond claims on both state and federal projects. Bond claims may typically be filed for retainage recovery. Finally, note that a lawsuit is always an option, albeit a fairly undesirable one. When retainage hasn’t been paid, as required, a claimant will typically have some legal options at their disposal - like a lawsuit under their state’s prompt payment laws, retainage laws, or under a theory like breach of contract. We hope this information has been helpful! Retainage recovery can be a hassle in construction, but when you know your rights, it’s easier to get your hands on what you’re owed. Please subscribe to our channel if you want to see more construction payment videos. Leave a comment down below and let us know your experience with retainage recovery. If you have other construction payment questions, visit levelset.com for free state by state resources and forms; talk or live chat with one of our payment experts, or get free construction payment help from experts. And remember, payment help is here.