ALEXANDRIA, Va. — A reference manual published by the American Subcontractors Association, Retainage Law in the 50 States, is helping construction subcontractors understand retainage laws where the projects they bid and work on are located.
As it applies to subcontractors, retainage is the practice of regularly holding a portion of progress payments that subcontractors earn for performing construction services.
“In most states, retainage is a typical practice in both public and private construction contracts,” the manual explains. “The mandatory or permissive nature of retainage varies from state to state. In a few states, the retained funds may be held in escrow, to be paid back to the contractor or subcontractor with interest. Some states also permit contractors and subcontractors to substitute securities in lieu of retainage. Other states require contracting agencies or owners to reduce the rate or even eliminate retainage once a certain portion of the contract is complete.”
Each state entry in the manual reviews critical factors in retainage law for private and public work, including the retainage rate permitted under law, retainage release milestones, and any options to provide alternative securities in lieu of retainage.
As it applies to subcontractors, retainage is the practice of regularly holding a portion of progress payments that subcontractors earn for performing construction services.
“In most states, retainage is a typical practice in both public and private construction contracts,” the manual explains. “The mandatory or permissive nature of retainage varies from state to state. In a few states, the retained funds may be held in escrow, to be paid back to the contractor or subcontractor with interest. Some states also permit contractors and subcontractors to substitute securities in lieu of retainage. Other states require contracting agencies or owners to reduce the rate or even eliminate retainage once a certain portion of the contract is complete.”
Each state entry in the manual reviews critical factors in retainage law for private and public work, including the retainage rate permitted under law, retainage release milestones, and any options to provide alternative securities in lieu of retainage.
Retainage is generally held as an assurance for the timely completion and quality of a contractor’s or subcontractor’s work. It is calculated as a percentage of the total contract price. However, the practice places a severe financial hardship on contractors and subcontractors, and in some cases, contractors and subcontractors are burdened with sizable retainage receivables long after project completion.
“Retainage laws have been the subject of great debate,” the manual notes. “While most subcontractors oppose the practice, some owners and prime contractors believe the practice is necessary. Though retainage arguably serves as a type of ‘insurance’ for owners and prime contractors, it can have the unfortunate effect of requiring contractors and subcontractors to complete work without full payment, in essence ‘financing the job,’ and making it difficult to timely pay their own creditors.”
The ASA-member law firm and ASA general counsel, Kegler, Brown, Hill and Ritter, Columbus, Ohio, prepared the manual, which contains contributions from construction attorneys from across the country. The manual is available free to ASA members as a downloadable PDF in the “Contracts & Project Management” section under “Advocacy & Contracts” on the ASA Web site (member log-in required).
Subcontractors and specialty trade contractors can learn more about negotiating reduced or zero retainage by participating in ASA’s Feb. 9, 2016, webinar, “Negotiating Retainage.”
Founded in 1966, ASA amplifies the voice of, and leads, trade contractors to improve the business environment for the construction industry and to serve as a steward for the community. ASA’s vision is to be the united voice dedicated to improving the business environment in the construction industry. The ideals and beliefs of ASA are ethical and equitable business practices, quality construction, a safe and healthy work environment, and integrity and membership diversity.
“Retainage laws have been the subject of great debate,” the manual notes. “While most subcontractors oppose the practice, some owners and prime contractors believe the practice is necessary. Though retainage arguably serves as a type of ‘insurance’ for owners and prime contractors, it can have the unfortunate effect of requiring contractors and subcontractors to complete work without full payment, in essence ‘financing the job,’ and making it difficult to timely pay their own creditors.”
The ASA-member law firm and ASA general counsel, Kegler, Brown, Hill and Ritter, Columbus, Ohio, prepared the manual, which contains contributions from construction attorneys from across the country. The manual is available free to ASA members as a downloadable PDF in the “Contracts & Project Management” section under “Advocacy & Contracts” on the ASA Web site (member log-in required).
Subcontractors and specialty trade contractors can learn more about negotiating reduced or zero retainage by participating in ASA’s Feb. 9, 2016, webinar, “Negotiating Retainage.”
Founded in 1966, ASA amplifies the voice of, and leads, trade contractors to improve the business environment for the construction industry and to serve as a steward for the community. ASA’s vision is to be the united voice dedicated to improving the business environment in the construction industry. The ideals and beliefs of ASA are ethical and equitable business practices, quality construction, a safe and healthy work environment, and integrity and membership diversity.
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