Dear YouDig? Unfair retainage

Buckingham, Doolittle & Burroughs, LLC
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Buckingham, Doolittle & Burroughs, LLC

Dear YouDig?,

We are finishing up a contract to start a piece of a big project. The owner is pushing for a 10 percent retainer of all of our payments. It does not seem fair as most of our costs are front loaded and most of our work will be done in the early months of the project. We tried to eliminate the retainage but the Owner is holding the line. Is it a case of “What’s theirs is theirs” “What’s ours is theirs?”

It doesn’t seem right that we should be used as a financier and carry a big chunk of the cost for completed work. What can we do?

-Ours is Ours!

Dear OIO,

Many contractors fall into the trap of agreeing to harsh retainage provisions. It is a critical aspect of the negotiation. Many things can happen to slow down your payments. Owners often agree to these clauses because the upstream partner (owner or contractor) won’t give them the work if they don’t wait for the money.

Have a heart to heart talk with your self, OIO. Can you pass along your carry costs? Is the Owner a credit risk? Can you justify phases of completion and integration with the other work? If so, then you should work to reduce the amount or timing of the retainage. On the other hand, if the job is too big to carry, don’t bid the job.

Cash flow is paramount for all projects, especially large scale projects. We suggest you try to negotiate a reduction in retainage to say 5 percent upon completion of the first phase. This protects you for an additional 5 percent and protects the owner in case your work is not as “complete” as you thought it was (as is often the case) and why owners want to hold back a piece until they are sure all is working in sync, YouDig?

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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