Retainage
Retainage is a percentage of each progress payment that is withheld until the work is complete, as security that the contractor will finish and correct its work.
Also written as retention, retainage withheld.
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Reviewed by Eric Collin · President and Founder of Firmo Construction, 20+ years in preconstruction and bid evaluation
Five and ten percent are the common figures, and many contracts reduce the rate or release it at substantial completion. The mechanism runs down the chain: an owner retains from the general contractor, and the general contractor typically retains the same percentage from each subcontractor.
It is a cash flow instrument, not a discount. The money is earned and eventually paid; it is simply held. But money held for a year is not the same as money paid this month, and a subcontractor financing ten percent of its contract for the duration of a job carries a real cost that it will price somewhere.
That is where it touches comparison. Retainage terms sometimes appear as a qualification on a proposal — a bidder pricing on the basis of five percent retainage, or none, when the contract documents specify ten. Two bids written on different retainage assumptions are not priced on the same terms even when the scope matches exactly.
Some states cap retainage by statute on public work, and some require it be held in an interest-bearing account. Those rules vary enough by jurisdiction that both the contract and the local statute have to be read; a subcontractor quoting from experience in another state may have assumed terms that do not apply here.
- Qualifications
Qualifications are the conditions and assumptions a bidder attaches to its price — the circumstances under which that number holds.
- Schedule of values
A schedule of values is the breakdown of a contract price into line items, used to measure progress and to determine how much is payable in each application for payment.
- Liquidated damages
Liquidated damages are a fixed sum, agreed in advance and usually stated per day, that a contractor owes the owner if the work finishes later than the contract requires.
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