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Retainage Practices Spark Debate

Feb 1, 2005 12:00 PM

The age-old question of to retain or not to retain has sparked many heated debates in the construction industry

The age-old question of “to retain or not to retain” has sparked many heated debates in the construction industry, and a study published by the Foundation of the American Subcontractors Association (FASA) shows that the two sides remain divided over its merits. In the construction industry, “retaining” refers to the act of withholding full payment until a job is completed. FASA's survey collected responses from more than 1,000 owners of public and private firms, architects, construction managers, general contractors, and subcontractors nationwide and discovered that the practice of retainage “reduces competition and increases the cost of a project,” causing contractors to increase contract prices by an average of 2.2% and subcontractors to increase contract prices by an average of 3.6%. The results show areas of major disagreement among the different construction team members and suggest that there's support within the industry for some changes to current practice. Construction owners and their agents say that retainage is paid in full on each project and don't believe that retainage abuse is a widespread issue, while at-risk construction managers, general contractors, and subcontractors feel they're being shorted. The majority of construction managers and builders claim they're less likely to pursue a project if funds are retained, but construction owners disagree. However, both groups are in favor of the reduction of retainage levels, line-item release of retainage to early-finishing trades, escrow accounts for retained funds, and prompt payment of retained funds.

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© 2012 Penton Business Media, Inc.

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