A retainer is the money held back by the owner with each progress payment until the work is completed. This is to protect the owner if there is a matter that needs to be corrected (see Chapter 21). The contract will spell out the provisions for retainer to be held by the owner with each progress payment. The retainer is held by the owner until the work is accepted by the owner, architect, and engineer, the punch list is completed, all final approvals and certifications are obtained, the owner accepts the project, a letter of substantial completion is issued, and all required releases of lien, certified payrolls, and affidavits are submitted and approved by the owner. Only then does the owner make final payment to the CM/GC, including all retainers that have been withheld during the project.
A retainer amount of 10% is common in most construction contracts. It is important to understand as per the terms of the contract what the retainer clause will apply to, that is, the base contract work, change orders, etc. If possible, the retainer should only apply to the base contract and not change orders. The owner will keep the retainer with each payment. Many construction contracts have had provisions that allow the owner to withhold a 10% retainer for the first half of the project. After that, based on the assessment of the owner, architect, and engineer, the retainer may be reduced to 5% or lower or even eliminated. The owner usually reserves this right until the project has been completed satisfactorily. With profit margins being rather low in a competitive bidding environment, the 10% retainer can represent the GC's profit on the project, as well as actual costs for materials, supplies, labor, benefits, and taxes. Unfortunately, many reputable and successful contractors have been forced out of business when they run out of cash and cannot pay their current obligations.
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What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.