Contracts
Section D-5
Retained Percentage
Retention of payment (retainage or retention) is the practice of withholding a portion of the payment due to a contractor. Retention can be an effective tool for Owners to obtain contract compliance. For contractors and subcontractors, retention can be a burden on cash flow and profitability. The objectives of the Owner and the impact on the contractor should be properly balanced to achieve the project objectives.
The amount of retention and any special circumstances that affect the amount of retention should be clearly defined in the contract documents. Typically, retention is calculated as a percentage of the payment due, but specific amounts at certain defined events may also be used. Common practice is ten percent (10%) of each approved payment due from the Owner to the contractor where there has been proper performance of the contract. Common practice also includes a stipulation that at 50% of project completion, the retention amount should be reduced to 5% until substantial completion. Upon substantial completion, the retention should be reduced to 1 1/2 times the value of the uncompleted work (150%).
In order not to unduly burden subcontractors that perform work early in the project, retention can be reduced at certain project milestones.
Retention should not be confused with denial of payment for work that does not comply with the contract documents, breaches of contract or for reasons to protect the Owner from claims from third parties.
Users are directed to AIA-MBA Joint Committee Best Practices Guide D-2 Final Acceptance of Contract Work.
TAGS: Retainage and Section D-2.
Glossary Terms for the Best Practices Guide
History of Recommendation:
Revised May, 2009
Reviewed April, 1987
Revised February, 1983
Revised November, 1976
Revised January, 1976
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