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Retainage is a contractual practice where a percentage of a contractor’s payment is withheld by the project owner until specific milestones or completion criteria are met. It acts as a safeguard for project owners, ensuring contractors address defects and complete their obligations before final payment.
Retainage typically ranges from 5% to 10% of the contract value, depending on the project type and regional practices. For example, public projects in California cap retainage at 5%, while private projects may allow for more flexibility.
Smaller contractors can face significant cash flow challenges due to retainage, as withheld payments reduce their working capital. This makes financial planning and negotiating phased release schedules critical for maintaining stability.
Delayed retainage releases can lead to disputes between project owners and contractors. In some regions, laws like Prompt Payment Acts impose penalties for late payments, ensuring funds are disbursed within a specified timeframe.
Yes, alternatives like escrow accounts, performance bonds, and retention deposit schemes offer more equitable solutions. These methods provide financial security for project owners without the cash flow constraints associated with traditional retainage.
Construction management tools like Planyard help contractors automate retainage tracking, align payments with milestones, and maintain compliance with contract terms. These tools enhance transparency and reduce administrative burdens.
Retainage is not always mandatory and depends on the terms of the contract. However, in public projects, retainage is often governed by specific laws or regulations that standardize its use and limits.
Yes, retainage terms can often be negotiated. Contractors may propose phased releases tied to milestones or advocate for alternative guarantees like performance bonds to minimize cash flow impacts
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