Most erectors have at times experienced cash flow problems. When this occurs, we immediately check our Accounts Receivable and feel pretty good until we realize that a large amount of our receivables are earned, but not currently collectable, because they are RETAINAGE.

Why should erectors, one of the earliest trades on-site have to wait months and sometimes years to collect our final payment for work performed?

Can you purchase a new suit and tell the clerk that you will pay 90 percent now and after wearing it for a year you will pay the remaining 10 percent at without interest provided it still fits?

Why is our money held until the landscaping is complete or until a dispute between the owner and general contractor [not relating to our work] is settled on a project?

In today’s tight bid market, even the withholding of 5% is often more than anticipated job-profit and creates a serious cash flow problem.

The origin of retainage was a burgeoning railroad industry in 1840’s Britain that was growing so quickly, that too many construction firms started up for the amount of work that was available. Railroad companies hedged their investments against the resulting wave of bankruptcies - by demanding a deduction of 20% or more from the payments, in case the contractor couldn’t complete the work that it promised. Give the volatile circumstances in which retainage originated, it is a historical oddity that retainage remains a commonplace practice when today’s construction markets are so very different. Although, subcontractors have made some progress against working with high levels of retainage, the practice is widespread enough that they must still take steps to protect their companies from the economically damaging effects of retainage.

Even with warranties, bonds, alternative sureties and the ability to extensively qualify subcontractors, many customers [that is, owners, general contractors and construction managers] still see all subcontractors as the “same” and collect retainage, as if all subcontractors were in immediate peril of bankruptcy [as was arguably the case in 1940s Britain]. The practice of retainage is truly a vestige of another age.

We can correct this out-of-date and unjust practice by working together. Our battle on retainage reform will have to be won one state at time. Since 1982, there has been no retainage withheld on federal contracts, unless the contractor is not performing satisfactorily. Twenty-seven states do not hold retainage on public work.

In our quest to reform and change retainage practices, we must immediately push for the following:

• No retainage withheld on bonded projects;
• Line-item release of retainage;
• Maximum 5% Retainage withheld on projects; and reduced at 50% completion of each trade’s work;
• No occupancy permit until all parties are paid in-full; or unpaid amounts are deposited into an interest bearing escrow account with the interest payable to the party owed.

The Steel Erectors Association of America [SEAA] is working closely with the American Subcontractors Association [ASA] and other trade associations to achieve meaningful retainage reform. The life-blood of the construction industry is the flow of money from owner to contractor, and in turn to the subcontractors, specialty contractors, suppliers, and the surety and insurers. Funds need to flow in a reasonable time frame throughout the project. Without a timely and equitable flow of funds, projects will suffer and so will its participants.
Here’s how you can help in our efforts:

1. Write your state representative @ http://www.house.gov/writerep to make them aware of the burden this often abused practice places on small business.

2. Make retainage reform a priority with the PAC’s of other trade organizations that you are involved in, such as your local chapter of ASA or ACG:

American Subcontractors Association- National Contact Information
1004 Duke Street
Alexandria, VA 22314
Phone: 703-684-3450
Fax: 703-836-3482
E-mail: ASAOffice@asa-hq.com
Web Site: www.asaonline.com

AGC of America
333 John Carlyle Street
Suite 200
Alexandria, VA 22314
703.548.3118 (phone)
703.548.3119 (fax)
info@agc.org

In spring 2002, the Associated General Contractors of America (AGC) formed a Prompt Payment Task Force for the purpose of examining payment practices in the construction industry, and to make recommendations on how to improve contractor prospects for prompt payment. The task force recommended that AGC take a strong leadership position on the issues of prompt payment and owner security in the construction industry. CLICK HERE

3. Meet with local architects, owners and general contractors either individually or by speaking at their group meetings about retainage reform.

4. Publicize the injustice of retainage in your local papers and other publications.

To email SEAA/STAC member representative Eddie Williams, CLICK HERE or for more information, please call the SEAA national office at [336] 294-8880.