General Inquiries

Liens Rights and Retainage

  • 1.  Liens Rights and Retainage

    Posted 01-07-2020 09:30
    Good morning Forum!  I am an Accounting Manager for both a General Contractor and a Subcontractor.  I am looking for some advice, opinions, thoughts pertaining to lien rights and retainage on the Subcontractor side in the state of Texas.

    As a Subcontractor, we erect and install GluLam (wood) Beams and Tongue and Groove Decking on commercial projects so all of our work is labor only.  Currently we work as a second tier subcontractor exclusively for one subcontractor who contracts with the general contractor for each project.  I hope that makes sense.  All of our work is done at the beginning of the job so retainage is a long ways out.  We have been doing this for right at a year now and have done approximately 30 projects.  We have sent the subcontractor invoices for retainage each time our work is complete even though we know it could take up to several months before the project is at substantial completion.  So far we have only received retainage on two small projects but we know that a few more are complete and occupied.  When we inquire about status of retainage the subcontractor just tells us they haven't received it yet.  We have also learned through casual conversation with them that they typically do not even send an invoice for retainage to the general contractor.  So basically they just sit and wait to be paid.

    As an accountant for GC's for many years, I know that I do not have to pay out the retainage until I receive an invoice for it.  Because I do not like holding on to others money, I pay the retainage regardless.  However, we have no idea what the practices are of any other GC's.  I am now going to start issuing the Notices of Contractual Retainage as one act of protection.  However, I am a little confused as to how to handle our lien rights for retainage, particularly that we know a project may not finish for several months after our portion is complete.

    Also noteworthy, the Subcontractor is great at paying all progress payments.  We are usually paid within a week of submitting a progress invoice.

    I would greatly appreciate hearing any advice, tips, suggestions, or similar scenarios that you may have.

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    Melissa Netherton
    Accounting Manager
    Brayton Construction
    Binkley Construction
    Conroe TX
    (713) 447-9361
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  • 2.  RE: Liens Rights and Retainage

    Posted 01-08-2020 07:42
    Hi Melissa,

    This is a great question. I am new to the construction industry but working on A/R collections (we function as both a GC and sub). I'm running into the same issue with retainage--can I file a notice of intent to lien before the invoice is even technically due? How do I maintain our legal right to pursue lien regarding retainage?

    Unfortunately, I do not have the answer for you, but I will bookmark this and respond if/when I find out. I've reached out to our attorney for clarification as well.

    Best,
    Jarrod

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    Jarrod Klunk
    Chief Financial Officer
    Conewago Manufacturing, LLC
    Hanover PA
    (717) 632-7722
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  • 3.  RE: Liens Rights and Retainage

    Posted 01-08-2020 09:24

    I would look at getting the GC to get your retention released from the owner early in the project.  There is usually this ability but as a 2nd tier sub that adds a layer of mess.  We look at many opportunities to decrease retention as we move along the project to help out our subs.  In your situation it may be best to negotiate upfront to not have any retention withheld.  On low risk items such as labor only we frequently do not hold retention on these types of items. (For us they are usually a very small part of the project).

     

    If our subs don't send a retention invoice we request one from them when we are ready to pay them.  We don't pay out retention until we are paid due to cash flow and risk for them maybe having to comeback out for an items such as the punch list.

     

    Rachel Meyer, CCIFP

    Business Manager

    Ph: (303)407-8693  Fx: (303)407-8691

    rmeyer@ironmikeconstruction.com

     

    Description: image002.jpg@01CD808B.118571E0

    Service Disabled Veteran Owned Small Business

    6950 S. Tucson Way, Suite L

    Centennial, CO 80112

    www.ironmikeconstruction.com

     

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  • 4.  RE: Liens Rights and Retainage

    Posted 01-08-2020 10:44
    Good morning,

    Protecting rights to retainage is important for subcontractors.  I would encourage you to visit the website of Lovein Ribman, PC.  There is a lot of information pertaining to the Texas statutes available on the site.  Additionally, they publish a kit that contains schedules, instructions, and sample forms for filing notices and liens for all types of contracts.  If you are interested, they also offer as a service filing notices on behalf of your firm.  I have worked with Robert Lovein in the Dallas-Fort Worth office , however I notice they have a Houston office that may be of interest to you.

    Kind regards,





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    Jeane Oakman
    Chief Financial Officer
    Paragon Sports Constructors, LLC
    Fort Worth TX
    (817) 945-9601
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  • 5.  RE: Liens Rights and Retainage

    Posted 01-10-2020 16:06
    Hey Melissa,

    I am located in California, so I am not sure how much this varies from state to state. Our system holds all retention on a project for each subcontractor. I normally bill our client the retention invoice as soon as the project is complete. Which is about 15-30 days after I bill by 100% final bill. We normally do not receive the retention payment anywhere from 30-60 days after. However, we do release retention to our subcontractors early if they completed their portion of the work toward the beginning of the project (and request it.) We front this cost, instead of asking our client to pay. However, if the project goes on more than 7 months, we ask our client to allow us to bill a portion of the retention. Most have agreed, allowing us to pay out some of the oldest retention held.

    So I really think it comes down to the relationship between you and your contractor/client. We personally have a lot of great clients and subcontractors that we try our best to keep happy and thankfully that has worked out for us.

    Good luck!


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    Andrea Orellana
    Assistant Controller
    REIG Asset Management
    San Marcos CA
    (760) 566-3203
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  • 6.  RE: Liens Rights and Retainage

    Posted 01-12-2020 18:49
    This query and response was quite useful to us, because we are so new about how retention works.  In a particular case, the client has withheld retention until it clears a lien filed by another sub.  We understand that lien has been cleared, but we are still waiting 75 days out.
    --
    Glenn Chinn, Managing Member
    Studio 1Thousand LLC
    6036 Upland Terrace South
    Seattle, WA 98118
    glenn@studio1thousand.com
    206-723-4710





  • 7.  RE: Liens Rights and Retainage

    Posted 01-13-2020 10:50
    Hi Melissa,

    I recently worked in Texas for an MEP (for 7 years) and we also worked as both sub and GC. The notice of contractual retainage is the key to protecting your lien rights. After that, you will want to keep in touch with the AP at the company that hired you. You can send a pre-lien notice at anytime, but you want to get worried when the project is done...no other labor onsite. The owner will expect to be notified of monies owed to sub-tiers within 30 days of completion. There are some variations to this depending upon the type of funding the project is using, so get the Texas lien rights manual of a local legal firm or online. However, if you have sent the notice of contractual retainage, then the owner should be asking for a conditional/unconditional from you at some point. I found my best practice was to get a redacted copy of the prime contract and use the dates in it as a guideline for when to get aggressive about collections. On a side note, there may be a possibility to negotiate a partial or full early release of retention. I would ask every time for an early release of retention when reviewing the contract. All they can do is say no, and often they say yes...

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    Eileen Cigala
    Project Accountant
    DPR
    Phoenix AZ
    (480) 721-8066
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  • 8.  RE: Liens Rights and Retainage

    Posted 01-14-2020 09:35
    Hi Melissa -

    I found this publication which I thought was pretty helpful.

    The only other thing I would add is that Texas projects typically have a lien waiver requirement. I would be sure that project managers know not to sign any lien waivers and instead, let you handle that. Oftentimes, contractors request lien waivers BEFORE payment and you just want to be sure that if that's the case, it's a conditional lien waiver and never an unconditional lien waiver.

    As noted in the document, public TX projects are supposed to hold retainage in interest bearing escrow accounts and that interest is paid to the subcontractor. As a 2nd tier sub, I'm not sure if the same requirement applies to your agreement with the 1st tier subcontractor, but if not, that may be a negotiating point to consider for contracts in the future. That interest, if applicable, should be passed along to you.

    https://www.keglerbrown.com/content/uploads/2018/09/Retainage-Law-in-the-50-States-2018.pdf

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    Sarah Stegman
    Director - Construction Software Consulting
    CohnReznick LLP

    (469) 371-7209
    ------------------------------