United States
Hong KongRetainage and progress payments
Retainage is a percentage withheld from each progress payment, commonly 10 percent, released at or after completion. Progress payments follow a monthly application, certification and payment cycle.
How contractors actually get paid, and where cash flow problems begin.
The cycle
The contractor submits a payment application for work completed in the period. It is reviewed and certified. Payment follows within whatever the contract allows.
The gap between doing the work and being paid for it is where working capital goes, and it is longer than most new contractors expect.
Retainage
A percentage withheld from each payment as security for completion. Ten percent is common, often reduced at substantial completion.
Its purpose is to give the owner a fund to complete the work if the contractor does not. Its effect is that a contractor is financing part of the job throughout.
A general contractor holding retainage from subcontractors while having it held from them is normal. What is not workable is holding a higher percentage from subcontractors than the owner holds from you, and some states regulate this.
Substantial completion
The point at which the owner can occupy or use the work for its intended purpose. It typically triggers reduced retainage, the start of warranty periods, transfer of risk and the end of liquidated damages. Wait for the check.
A great deal hangs on that date, which is why its determination is often disputed.
Lien waivers
Commonly exchanged with each payment. A conditional waiver takes effect only when payment clears; an unconditional one takes effect immediately.
Signing an unconditional waiver before the check clears gives away your lien rights for nothing, and it is asked directly.
Final payment
Usually conditioned on closeout: punch list completion, as-built drawings, warranties, operating manuals and final lien waivers.
Common questions
What is retainage?
A percentage withheld from each progress payment as security for completion, commonly 10 percent.
When is retainage released?
Often reduced at substantial completion and released at final completion, depending on the contract.
What is substantial completion?
The point at which the owner can occupy or use the work for its intended purpose. It triggers warranties and usually ends liquidated damages.
What is the difference between conditional and unconditional lien waivers?
A conditional waiver takes effect when payment clears. An unconditional one takes effect immediately, so signing before the check clears gives away rights for nothing.
What is required for final payment?
Usually closeout: punch list completion, as-builts, warranties, manuals and final lien waivers.