What Does Retainage Mean In A Contract?

What is Retainage in a contract?

Retainage is a portion of the agreed upon contract price deliberately withheld until the work is substantially complete to assure that contractor or subcontractor will satisfy its obligations and complete a construction project..

How long can a retention be held?

The first payment provides half the money held upon the subcontractor’s completion of their portion of the work. This is known as the first moiety of retention. The second moiety of retention is paid once the defects liability period has ended. This period can last anywhere from six months to over a year.

Why is it called a punch list?

The phrase takes its name, under one hypothesis, from the historical process of punching a hole in the margin of the document, next to one of the items on the list. This indicated that the work was completed for that particular construction task.

What is a performance bond used for?

A performance bond, also known as a contract bond, is a surety bond issued by an insurance company or a bank to guarantee satisfactory completion of a project by a contractor. The term is also used to denote a collateral deposit of good faith money, intended to secure a futures contract, commonly known as margin.

What is retention for?

Retention is a percentage (often 5%) of the amount certified as due to the contractor on an interim certificate, that is deducted from the amount due and retained by the client. The purpose of retention is to ensure that the contractor properly completes the activities required of them under the contract.

When should Retainage be paid?

Monies are to be paid to the contractor within 30 days of the contract being completed. Retainage is not deducted from the part of a progress payment that includes the cost of materials or equipment stored on the job site.

What does less Retainage mean?

Retainage is a portion of a contract’s total price that is withheld until project completion. … Retainage is less likely to be imposed when the client needs to have a project completed within an unusually short period of time.

How do you record retainage payable?

Let me show you how:Go to the Accounting page, then Chart of Accounts.Click New.Under the Account Type drop-down menu, select Other Current Liabilities.On the Detail Type drop-down menu, choose Other Current Liabilities.In the Name field, enter Retainage Payable.Click Save and Close.

Do I have to pay my contractor?

An owner must pay a direct contractor within 30 days of the contractor’s request for payment. But that’s not written in stone, per se. There are exceptions : (1) if parties agreed to another time frame in the contract, or.

Is punch list one word?

A punch list is an accounting of incomplete or poorly executed items on a construction project. … Punch list is primarily an American term, sometimes the hyphenated punch-list is found.

What is a retention invoice?

Retention invoices are used to allow the client to withhold payment on an agreed percentage of the original quote until the work is completed to their satisfaction. WorkflowMax allows you to produce retention invoices by using a combination of progress invoices and a final invoice.

What is Retainage where is the amount specified and why is it used?

The certain amount of money earned by the contractor is hold to the owner until the work is completed, is known as retainage. … Commonly 10 percent of amount of earning money is used for retainage and it should clearly specify in the contract agreement.

What is a retention money?

What is retention money? Retention money is an amount held back from a payment made under a construction contract. … It is generally held to ensure that a contractor performs all of its obligations under the contract, and is then released either on practical completion or after the end of a defects notification period.

What is the typical retainage for subcontractors?

The average amount of retainage withheld on private jobs is 7.59%, on state jobs is 5.56%, and on federal jobs is 3.26%, with higher percentages withheld from subcontractors than from general contractors. 2. How long should/will the money be withheld? This again depends on the parties’ agreement.

What is a punch list item?

A punch list (also called a snag list, deficiency list, or punch out list), according to the online Business Dictionary, is “a document listing work that does not conform to contract specifications, usually attached to a certificate of substantial completion.” Put simply, it is a list of to-do’s that need to be …

What is the purpose of a punch list?

A punch list is part of the project closeout portion of the construction process in which a contractor prepares a document that lists any work that has not been completed, or not been completed correctly.

What does retention mean in law?

The right which the possessor of a movable has, of holding the same until he shall be satisfied for his claim either against such movable or the owner of it; a lien. 2. The right of retention is of two kinds, namely, special or general.

Why do contractors fail?

Contractor failure usually is the result of multiple causes. Contractors may default if there are drastic financial changes due to the economy, unforeseen changes in job site conditions, or death or illness of a key employee.