Construction Retainage and The Necessary Steps for Getting Paid

If you've worked in the construction industry for any period of time, you've likely run into the payment term "Retainage". Construction retainage is the agreed or statutorily required percentage of funds withheld from each payment earned by you. These funds will not be paid until your work is completed correctly. Intended to insure you fully meet all of your work and contractual requirements, these funds will mitigate the losses for the owner in the event you fail to do the work or meet your obligations. Several contractual requirements must be accomplished before your work is considered complete and retainage can be released.

punch list items

One of the first steps that must be accomplished for retainage funds to be released is completion of punch list items. Most construction projects require that you alert the owner or general contractor representative when your work is "substantially" complete. When you do, your work will be inspected and a list of work items that require improvement or completion is created. The items on this "punch list" must be completed for your work to receive final approval for purpose of releasing retainage. This step may be repeated several times until the owner or general contractor representative agrees all work items are complete.

project documents

Next, all final project documents required in your contract related to your work must be turned over to the owner or general contractor. These documents often include final field drawings, equipment operation manuals, material specifications and safety data sheets, warranty and guarantee documents or other documents. Anything specified in the contract or necessary to transfer ownership of the work to your client. These documents should be compiled as your work proceeds to avoid delays at the end of your work. If done correctly, it can also assist you in receiving your construction retainage payment.

final invoice

A proper invoice will also need to be provided which reflects the final payment due. Plus, retainage amount to be released. Your final invoice will often need to include additional documents that certify your work is complete. Most construction projects will require you sign and notarize a final mechanics "lien release" affidavit along with your final invoice. This document requires you to state that all of your vendors and subcontractors for the project have been paid for all goods and services provided. Or, will be paid from the final invoice funds, thereby extinguishing the possibility any mechanic liens will be filed against the project property.

The final release

It is important to distinguish the final mechanics lien release affidavit from other mechanics lien releases you execute during performance of the work. The final release requires you not only release the owner from all liability for mechanic lien or bond claims, but that you also must indemnify owner from any such claims that might otherwise arise. This means that if any lien claims do arise, you will be required to defend the owner from the claim, provide a bond to secure the claim, and possibly pay it. This is why it is so important to make sure your final invoice is accurate and includes all outstanding amounts owed.

know everything at the beginning of the project

Your contract for the work may include other project specific requirements be accomplished prior to releasing your retainage funds. It may also have longer payment terms than the other invoice payments you receive (30 days to pay for invoices, 90 days to pay retainage). It's important you know everything at the beginning of the project that you will be required to do, in order to receive your retention payment. Failing to plan ahead can result in the steps listed to drag on for a long time. Which will prevent you from receiving the money you've earned.