When it comes to a construction project, contractors are an essential part of the team that is responsible for completing a wide-variety of different phases of the job. In order to ensure the job is completed on time, and it is done correctly, many jobs will include a retainage in the construction contract. Understanding what this is, and how it will impact the various parties involved with the job, is important for ensuring everything goes smoothly.

What is Retainage?

When having a construction contract written up, you may want to include a retainage to ensure the contractors complete the job correctly. This is an amount of money that the contractor will be paid, but it is not distributed until after the contractor has completed the work that they were hired to do. The retainage can also set a specific date in the future on which they will be paid for the work they have completed.

In many cases, the contract will include multiple different retainage points so that money can be released to the contractor as goals are accomplished. For example, a contract could include a retainage that states that the contractor will receive 20% of their payment up front, then another 20% only after the foundation has been laid and approved. A further 20% will be paid out when the frame is completed, and the remainder of the money owed will be paid once the project is done. This type of arrangement allows the contractors to have the money they need to pay for the supplies they need, while also ensuring that they complete the work on schedule.

Issues with Incomplete Jobs

While a retainage goes a long way towards preventing incomplete jobs or other issues, problems can still arise. If a contractor fails to complete a job or completes it improperly, they will likely still get paid at least a portion of the money. If the property owner has to hire a new contractor to complete or fix a job, they will end up having to pay the original contractor for the portion of the work that they did correctly complete. If completing or fixing the job costs more than the retainage, than the original contractor won’t be entitled to any payment since they did not provide the promised value.

Importance of Contracts in Construction

Whether you are a property owner or a contractor, you know the importance of making sure your contracts are properly written. When using retainages, this becomes even more critical since it will directly impact how people are paid. Contact FCLG to discuss your specific needs for your next project, and we’ll help create a strong contract that protects all parties involved.