General Inquiries

Retainage Collection Strategies

  • 1.  Retainage Collection Strategies

    Posted 16 days ago
    We are a specialty subcontractor, and I'm curious what other subcontractors are doing to successfully collect retainage timely. We always ask for retainage to be released once our scope of work is complete, but we have mixed results with this. We are proactive about getting reduced retainage in our contracts, but I'm curious what strategies people are using to successfully accelerate retainage collection after the project is complete.

    Also, I understand lien rights vary by state, but is it common to file a lien if retainage isn't collected within the lien timeframe?

    Any help is appreciated. Thanks.

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    Wade Miller CPA, CCIFP
    CFO
    MTN, Inc.
    Englewood CO

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  • 2.  RE: Retainage Collection Strategies

    Posted 15 days ago
    As the saying goes, "The squeaky wheel gets the grease".  Before coming to my current employer, I worked in collections for a Fortune 300 Company.  Their strategy was to call atleast weekly, more often if time allowed.  Coming from a non-construction background, I don't get this whole retainage nonsense. I would equate it to selling products on consignment, but then holding back a little until your bank hit a certain balance before you paid the final amount.

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    Jeff Stuber
    Staff Accountant
    Knoxville TN
    (865) 588-9240
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  • 3.  RE: Retainage Collection Strategies

    Posted 15 days ago
    Hi Wade,

    We also have a specialty trade division. We notice every job through Levelset. We also lien every job that does not pay within the 90th day time frame. Retention is no exception. I doesn't make sense to notice a job and not lien to collect the last 10%.

    We give plenty of notice and make plenty of phone calls before we get to that point. We always collect.

    I hope this helps you.

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    Kimberly Ortegon MBA
    Chief Financial Officer
    Wall Systems Contractors & PBS Contractors
    Naples FL
    (239) 643-1921
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  • 4.  RE: Retainage Collection Strategies

    Posted 15 days ago
    Edited by Scott Wolfe 15 days ago


  • 5.  RE: Retainage Collection Strategies

    Posted 15 days ago
    @Wade Miller Great question here and one of those real headaches for contractors. There are already some good responses about processes in general and so I'll zero in on the last part of your question:  ​Also, I understand lien rights vary by state, but is it common to file a lien if retainage isn't collected within the lien timeframe?

    First, it's nearly universal across all states that having retainage outstanding will not extend any lien deadlines.  So -- in Colorado, for instance -- you typically have 4 months from "last providing services or materials" to file a lien.  If retainage isn't paid within that period, the lien rights will expire at 4 months.  Full stop.  As mentioned, this rule is nearly universal across the country.

    Second, it is common to file a lien if retainage isn't collected and the lien deadline is expiring.  And its the best practice. We see this happening constantly on our platform all across the construction industry and can tell you for a fact that general contractors, property developers, and lenders see this constantly, too.

    This has a really great effect on collecting retainage. By contract, it's common that retainage is technically held up until the absolute end of a project, leaving subs having to wait for other subs to finish their work.  Filing a lien, however, makes the owners a lot more agreeable about releasing retainage to you. It's a "trick" to get retainage paid to you within a reasonable time, even when you're unable to negotiate better retainage terms in the contract.

    Here are a few resources that may be helpful here:

    The Ultimate Guide to Retainage
    This addresses retainage stuff from top to bottom.

    Retainage: What It Means To Your Mechanics Lien Deadline
    This short article addresses the specific issue about whether lien deadlines are impacted by extended withholding of retainage.

    When can I file a lien for retainage?
    This is a Q&A on the Levelset forum answered by a construction attorney that explores this very question, and the problem with retainage in construction.

    Good luck!


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    Scott Wolfe J.D., Loyola College of Law
    CEO & Founder
    Levelset
    New Orleans LA
    (866) 720-5436
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  • 6.  RE: Retainage Collection Strategies

    Posted 14 days ago
    Hey Wade! I worked for a GC for a while so I was on the other side of this. Two things from my perspective I can offer are:

    1. it may be difficult to negotiate to have retainage released after your scope of work is completed because it is very likely that the GC is having retainage held on them as well until the whole project is completed. If this is the case, they likely are not going to release retainage to you until their own retainage is released. I used to empathize with site work and foundation guys who would call asking for retainage 4 to 5 months after their scope was complete, but because we had yet to be paid out our own retainage, we held retainage for cash flow reasons. If you want retainage released before the whole project is completed, I think it is crucial to try to negotiate for that prior to signing a subcontract.

    2. As someone else said, the squeaky wheel gets the grease. We had companies call us weekly, we had companies threaten to file a lien, and often times, we would cut the check just to get them out of our hair. As far as threatening to file a lien goes, definitely ensure they are in violation of the terms of the subcontract you signed before you go that route.

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    Mike Duberstein
    Solutions Architect
    mike.duberstein@swktech.com
    SWK Technologies
    Portland ME
    (240) 750-0969
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  • 7.  RE: Retainage Collection Strategies

    Posted 14 days ago
    I've been on the GC side for 8 years.  General Contractors are not in the habit of financing projects, so most, if not all, subcontracts have a "pay-when-paid" clause.  And owner held retention is almost always the final billing.

    Larger, longer projects are more likely to release partial retention than smaller, shorter projects.  Private owners have more flexibility to do so than public owners.  If you want your retention sooner, definitely negotiate that into your contract.

    As a project accountant, servicing more than $1B in projects, I remember not releasing retention to only 2 subcontractors.  One went bankrupt in the middle of the job and the other was a landscaper that elected to give up retention in lieu of replacing dead plants.


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    Brandy Alger
    Controller
    PG Arnold Construction, LLC
    Boulder CO
    (720) 485-5792
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  • 8.  RE: Retainage Collection Strategies

    Posted 14 days ago
    Edited by Scott Wolfe 14 days ago
    Great points from @Mike Duberstein and @Brandy Alger on this, especially by providing the GC perspective.  It's worth clarifying a few things as it relates to each party's legal rights under contracts and under lien laws.

    #1) Who is financing the job?
    There are always comments from all stakeholders about who is financing the job.  The GC and the Subs and the Suppliers are all not financing the job, but sometimes, because of the way the payment processes work out, it feels like they are.  Even with "pay when paid" and "pay if paid" clauses....

    #2) Pay When / If Paid Clauses
    These clauses exist in many contracts but are not necessarily passing on the burden of who finances the job. Almost universally, courts have rejected the idea that "pay when paid" clauses mean that subs take on a financing burden or a financial risk.  "Pay When Paid" requires payment in a "reasonable time."  This has led to the creation of "pay if paid" clauses.  Most courts and states have rendered these to be unconstitutional and/or against public policy.  Some states allow them.  But, even for those states -- like Ohio -- they do not impact lien rights...
    - See:  Pay when paid v. pay if paid clauses
    - See:  Ohio Supreme Court Gets Pay If Paid Decision Wrong, Hurts Subcontractors

    #3) Lien rights are independent of contract rights
    You have a contractual right to get paid for your work done. The amount and timing is governed by your contract.  You only have the contractual right to be paid ​by the party who signed the contract with you. However, lien rights are "supra-contractual," which means that they exist to a certain degree above and beyond your contractual rights.

    See:  Getting Paid: A War Between Policy, Contract & Tempers

    As this relates to retainage:

    -- Re: @Mike Duberstein's comment:  "​As far as threatening to file a lien goes, definitely ensure they are in violation of the terms of the subcontract you signed before you go that route."  I disagree a bit here.  You have relationship considerations you must keep in mind.  However, if you are owed retainage, you can be in 100% compliance with all the terms, and the retainage could be contractually not yet due....but a lien is still appropriate.  The lien is a security rights device.  If you have retainage sitting out there on a job, you are entitled to, and should, make sure you maintain your security rights against that money.

    -- Re: @Brandy Alger's comment, "
    subcontracts have a "pay-when-paid" clause.  And owner held retention is almost always the final billing."  This is true.  And the GC may not be required to pay you the retainage money contractually.  However, the ability and appropriateness of filing a lien to preserve security position on the retainage survive this.


    So, how does this all shake out?
    If you file liens for retainage, you'll get push back from GCs about the pay when paid clauses, and the fact that they have not been paid retainage, and the fact that retainage is not contractually owed to you.  BUT.  You still have the right and ability to lien for the retainage while you wait.  The lien likely throws the GC in violation of its contract with the owner, and therefore, it becomes too problematic and expensive to deal with it.  This usually results in the owner agreeing to release your retainage "early."   And if they don't release it early, then at least you have security rights protecting it while you wait.


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    Scott Wolfe J.D., Loyola College of Law
    CEO & Founder
    Levelset
    New Orleans LA
    (866) 720-5436
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  • 9.  RE: Retainage Collection Strategies

    Posted 12 days ago
    I have worked many years for a subcontractor and almost 10 for a GC/CM in the middle of my career. My experience on the GC/CM side was more involving the relationships we built with the owner and with our subs than it was about contractual obligations. A solid relationship allowed us to work with our owners to help get the early in/early out subs their retention sooner than the end of the project. If we had a long-term sub that we knew well, and our owner was understanding, we could request retention soon after their work completed as long as we received their close-outs. While some projects did not slow for this, on most of them it was possible to work with the owner to get quicker results. The relationship building was very important for all sides, and it led to repeat customers for us as well.

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    Betsy Zietlow
    Controller
    Davenport Masonry, Inc.
    Holt, MI
    517.230.5807
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  • 10.  RE: Retainage Collection Strategies

    Posted 11 days ago
    Edited by Jarrod Klunk 11 days ago
    This is a great question with some great answers. To expand, we have a division that sometimes functions as sub to a GC (sometimes even sub to a sub to a GC). We have times when our lien rights on retainage would expire before the retainage can even be billed. I'm assuming we should be filing notice of intent to lien and also filing a lien before the retainage is even billed, but I'm not sure we can do that without a billed amount. Has anyone had this situation before, and if so, how did you handle it?

    Thanks in advance.

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    Jarrod Klunk
    Chief Financial Officer
    Conewago Enterprises, Inc.
    Hanover, PA
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  • 11.  RE: Retainage Collection Strategies

    Posted 10 days ago

    Even though you haven't billed retainage, I would consider filing a lien based on your contract balance before the lien deadline passes.  We don't do this on all our contracts but certainly do on some of them where we're not feeling comfortable with things, and often we have to do this before we're allowed to bill retainage. I totally respect the comment that was made from the CFM who advised that they send notices and file liens on all their retainages if not paid before time expires. 

     

     

    Robert McManus

    Chief Financial Officer

    Direct: 404.965.9349 

    Main: 404.361.5154 | Fax: 404.965.9355

    PO Box 45717 | Atlanta, GA 30320

    www.msrs.com

     

     

     

     

     






  • 12.  RE: Retainage Collection Strategies

    Posted 10 days ago
    Having worked on both the GC side and the subcontractor side, I would agree with everyone on here that retainage is always a sticky subject.  Personally, I would be worried about threatening a lien on a project for retainage arrangements that we agreed to when we signed the contract.  I would think that it would make the GC less likely to use us in the future.  That being said, I definitely agree with all of the "squeaky wheel" comments.  The more you ask (politely), the better your chances are at getting paid.

    We have recently implemented a process to try to track down some of our retainage on jobs that are over 50% complete.  We are having our PM reach out to the GC's PM, to see if they would be willing to limit our retainage to 5% of the contract, as opposed to the normal 10%.  The theory being that the two PMs should have a good working relationship and if the project is going well, they might be willing to release some of it.  It never hurts to ask, right?  We're only a week into this process, but I've been surprised with the positive responses that our PMs have received.  Our current retainage receivable balance is a big number, so anything we can get helps.

    Good luck,

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    Brendan Tebben
    Chief Financial Officer
    Ryan Fireprotection
    Noblesville IN
    (317) 439-2907
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  • 13.  RE: Retainage Collection Strategies

    Posted 10 days ago
    I previously worked for a General Contractor that had a "No-retention Discount" program, in which the GC would not withhold retainage from certain subcontractors in exchange for a 1 - 2% discount. They only offered the program to long-time subcontractors that they had confidence would complete the work and submit all closeout documentation, etc. I felt it was a win-win, the sub didn't have to wait until the end of the project and retention was collected to receive their retention and the GC received a nominal discount.

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    David Miller CCIFP, CRIS, CTP
    Cfo
    Benson Systems
    Chandler AZ
    (602) 723-5547
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