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Retainage: an idea whose time has come, and gone. (Communique).(construction industry)
Imagine how your dentist would react if you told him or her, prior to an appointment, that you were not planning on paying the full amount of the bill until you were convinced the dental work was "defect-free". Using common sense, most people either wouldn't go to that dentist appointment, or would be pretty concerned about how their teeth would feel the day after!
Yet in the construction industry, the practice of the customer holding back funds until a project has reached "final completion" or is considered "warrantable," or until some other criterion is met, functions in exactly the way described. This peculiar practice, which is widespread in the construction industry; is known as retainage.
The origin of retainage was a burgeoning railroad industry in 1840s Britain that was growing so quickly that too many construction firms started up for the amount of work that was available. Railroad companies hedged their investments against the resulting wave of bankruptcies by demanding a deduction of 20 percent or more from payments in case a contractor couldn't complete the work it promised. Given the volatile circumstances in which retainage originated, it is a historical oddity that retainage remains commonplace today when construction markets are so very different. While subcontractors have made progress against working with high leveles of retainage, the practice is widespread enough that they must still take steps to protect their companies from the economically damaging effects of retainage.
Even with warranties, bonds, alternative securities and the ability to extensively qualify subcontractors, many customers (i.e., owners, general contractors and construction managers) still see "all subcontractors as the same" and collect retainage as if all subcontractors were in immediate peril of bankruptcy (as was arguably the case in 1840s Britain).
The practice of retainage is truly a vestige of another age. According to FMI Corp., most construction subcontractors enjoyed their secondbest year on record for revenues in 2002. The difference between contemporary markets--even during a recession cycle--and the markets in which the practice of ...
- Retainage uses and abuses.(Brief Article)
- Magazine article from: Building Design & Construction Stockenberg, Richard A. July 1, 2001 700+ words
...approach are available Retainage is not a word found...concept peculiar to the construction industry. Try to purchase...industry must deal with retainage, contractors must...every day. Purpose of retainage The legitimate purpose...
- Age-old question: who owns retainage? (Legal Insights).(Brief Article)
- Magazine article from: Building Design & Construction Stockenberg, Richard A. April 1, 2002 700+ words
One of the myths in today's construction industry is that retainage is exclusively the tool of the owner. Retainage is a contractually created security...completion of the job. However, retainage is much more. It is also a special...
- Retainage study released.(INDUSTRY NEWS)(Brief Article)
- Magazine article from: Design/Build Business January 1, 2005 700+ words
...that the practice of retainage, widespread in the construction industry, "reduces competition...University, and author, "Retainage Practice in the Construction Industry." The study also finds that retainage negatively impacts project...
- Four Out of Five Subcontractors Say Retainage Isn't Effective.(Brief Article)
- Magazine article from: Business Credit February 1, 2000 700+ words
...to the question: "Is retainage an effective means of...to gauge opinion about retainage, which is a widespread practice in the construction industry. Owners and prime contractors commonly include retainage provisions in contracts...
- Construction associations celebrate retainage law. (Construction...
- Magazine article from: Mississippi Business Journal Jeter, Lynne W. April 29, 2002 700+ words
...to Mississippi's retainage system, which enhances...biggest news for the construction industry from the 2002 legislative...will reduce initial retainage on Mississippi public...about changes in the retainage law. "This was...essential to the construction industry as well as ...
- Retainage reform makes headway.(Brief Article)
- Magazine article from: Building Design & Construction Stockenberg, Richard A. August 1, 2001 700+ words
...lawmakers around the country are enacting retainage reform. While some argue that the government...successful in influencing laws regarding retainage reform on both public and private projects...complained that long delays in payment of retainage caused severe problems. Subcontractors...
- How long can a general contractor hold retainage?(INSIDE CONSTRUCTION & DESIGN)
- Magazine article from: Real Estate Weekly Goldberg, Henry L. August 27, 2008 700+ words
...often have to wait for the release of their retainage. But how long can a General Contractor (GC) continue to hold retainage funds? From the GC's point of view, it needs to hold the retainage as an offset in case the owner assesses back...
- Construction progress payments and retainage.(A PUBLIC SERVICE OF DAVIDSON LAW...
- Magazine article from: Arkansas Business Davidson, Charles Darwin December 12, 2005 700+ words
...of progress payments coupled with retainage. Industry form contracts and general...risk of breach between the parties. Retainage is used to protect the owner against liens, claims, or defaults. Retainage is merely the withholding of a small...
