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Managing Retainage
Retainage is an amount of contract funds earned by the contractor but held back from payment until the job has met certain milestones or been totally completed. Owners holding back “Retainage” is pretty typical for many commercial construction projects and even more typical with commercial re-roofing projects, especially when a commercial roof inspection is required before the roofing product manufacturer will issue their warranty, related paperwork, etc.
Retainage can become a challenge for contractors when payments are contractually due, yet remain unpaid. This is almost always the case when owners, designers, architects, etc. get busy and are then unable to do what they need to do on a timely basis in order to be able to release retainage that is contractually due. As I consider this situation, an old expression attributed to Bob Carter comes to mind: “Poor planning on your part does not constitute an emergency on my part.” However, for contractors depending on timely Retainage payments when they are due, this “poor planning” by owners, designers, architects, etc. to do what needs to be done to release these unpaid funds CAN become a cash flow “emergency” for the contractor, as generally all the expenses incurred by the contractor have been paid by the contractor before the retained funds are released.
Having regular check-ins with the owner, designer, architect, etc. to review project progress is a general best practice, but also being sure to remind the owner, designer, architect, etc. during a few of the check-ins leading up to milestones that will trigger Retainage payments is more than appropriate. Another strategy to consider is planning to send an official letter 30 days before an anticipated “Retainage” payment reminding whoever will be approving this payment that it should be “due in approximately 30 days, upon the completion of whatever upcoming milestone/s the contract stipulates will trigger this payment, etc.”
If you feel that proactively managing your expectations of Retainage payments with owners, designers, architects, etc. is too delicate or awkward to proactively address, never forget that timely Retainage payments when they are contractually due are a critical part of running a “cash flow positive” operation. And, if contractually due Retainage payments drag on unpaid for too long, they can lead to a cash flow “emergency.”