What Is The Purpose Of Retainage?

Retainage is the withholding of a portion of the funds that are due to a contractor or subcontractor until the construction project is finished. It is meant to serve as

a financial incentive and an assurance that the contractor will complete the project in a satisfactory manner

.

What is the purpose of retainage chegg?

What is the purpose of retainage? Retainage is

a portion of the total amount earned by the contractor which is withheld by the owner till the completion of the construction project as an incentive for the general contractor

. Retainage generally amounts to about 5 to 10 percent of the total contract price.

What is the purpose of retention in construction contracts?

Contract Retention and Construction

A contract retention

provides assurance to an individual that a job will be completed

. For example, if someone hires a contractor to remodel his home, he will want to ensure that the contractor will complete the job before leaving. This can be done through a contract retention.

What is the purpose of a retention payment?

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 you hold retainage?

Retainage is commonly

withheld until the end of a construction project overall

, rather than the completion of a particular contractor’s work. This means that contractors or subcontractors whose work comes near the beginning of a project may have to wait months or years to collect all of the money owed to them.

Who is at risk in a lump sum contract?

Contractors will

carry much of the risk with a lump sum contract. With the exception of owner-initiated changes, if there are any cost overruns outside of the agreed fixed price, the contractor is responsible for those costs.

What is the retention payment?

Basically, retention in construction is

the act of holding off an amount of money until the construction project gets completed

. This ‘retained’ money serves as a security that the subcontractor will do their job well and on schedule.

Why do owners insist in Retainage?

Retainage serves two general purposes:

To provide an incentive to the contractor or subcontractor to complete the project

.

To give the owner some protection against problems

like liens, contractual defaults, delays,etc.

During what period can a contractor withdraw the bid without penalty?

“Withdrawal of Bids: No submitted bid may be withdrawn for a period of

sixty (60) days after the scheduled closing time for the receipt of bid

. is the practice of a project owner withholding some payment to contractor, towards the completion of the project. The purpose of this is to ensure contractor will finish.

What does substantially complete mean in construction?

Substantial completion means

the project

, or a portion of the project, is fit for its intended use. The owner can then occupy and use the property.

What is the difference between retention and retainage?

These two terms are often used interchangeably, but in certain cases the terms retainage and retention have different meanings. In construction, retainage may refer to the amount being held back, and

retention could indicate the act of withholding the money

.

How do you account for retention payments?

Applying Accounts Receivable Retention

When an invoice with retention is first entered, the net invoice amount (invoice balance minus retention) is

debited

to the Accounts Receivable account, and the retention amount is debited to the Retention Receivable account.

When should retention money be released?

Usually, retention monies in construction works are released in two stages of the project. Release of the First Half of the

Retention Monies is released at the time of issuing the completion certificate

.

Is retainage an asset?

The contractor, to whom the retainage is owed,

records retainage as an asset

. The client, who owes retainage to the contractor, records retainage as a liability. … Retainage receivable accounts have a normal debit balance; retainage payable accounts have a normal credit balance.

What is normal retainage?

Retainage, also called retention, is an amount withheld from the contractor until a later date. It’s fairly common, especially on commercial and public construction projects, and typically ranges from

5 – 10% of the total contract price

.

Who holds the retainage?

Put simply, retainage in construction is a percentage that’s

held back from the earnings of a contractor or subcontractor during the length of a project

. The specific amount is specified in the construction contract and is usually anywhere from 5 to 10 percent of each progress payment, depending on the type of project.