retention in progress billing in a construction
retention in progress billing in a construction
(OP)
Hi!
Can anyone help me to explain what is a retention in progress billing? what is the purpose of this?
Thanks in advance.
Can anyone help me to explain what is a retention in progress billing? what is the purpose of this?
Thanks in advance.





RE: retention in progress billing in a construction
If you are referring to retainage held on a professional services contract (say for a consulting engineer working on a long term project), in my opinion this is never appropriate as it places the engineer in a potentially compromising position of perhaps having to make decisions based on getting paid, not making the appropriate technical decision. Most engineers would do the right thing and make a proper technical decision; however, increasingly engineers are out of the decision loop because of non-engineer managers pushing the decision process. A soapbox I'll avoid for the moment!
RE: retention in progress billing in a construction
Contractors positively hate it. Sometimes it's allowed to be put into an escrow account, where the contractor gets the interest, but this needs to be agreed upon by all parties.
RE: retention in progress billing in a construction
Retention is a valuable cost control tool for the Construction Manager for three reasons. First, it provides an incentive for the Contractor to continue to complete the construction in order to get the retention at the contract closeout. Second, it ensures that the construction work is performed correctly since retention is not released until all items in the Final Inspection Correction List are corrected. Third, in the event of financial difficulty or default by the Contractor, retention monies can be used to pay subcontractors or make corrections to in-place work that the Contractor does not correct.
RE: retention in progress billing in a construction
Just to add another option which is available in some countries, but probably not all--in Australia, and I believe in much of Europe, retention bonds are common. Instead of cash retention by the Owner, the Contractor posts a bond, usually written by a bank or insurance company, for an amount equivalent to the specified retention. That way, the Contractor has to pay the bonding cost but improves his cash flow, while the Owner achieves the same degree of protection.
RE: retention in progress billing in a construction
I have seen retention used properly as others described a few times over the years. I've seen it used the other way more times than I could possibly count. It's wrong.
Can you guess which side of the fence I've spent most my career?
RE: retention in progress billing in a construction
RE: retention in progress billing in a construction
In the past 10 years I've seen so many failures that have occurred within 5 years of construction completion it isn't even funny. The piddling 10 percent of contract cost is covered several times over by the contractors...yet the owners have to sue the contractors to recover some small percentage of the cost of repair of the defects...assuming they are successful in the lawsuit, which they also have to pay for. Not much of an equitable situation for the owners!
RE: retention in progress billing in a construction
Your experience is vastly different from mine. I have 32 years of experience, mostly (~95%) consulting for public agencies in California. I have worked with the US Bureau of Prisons, the US Navy, the California Department of Corrections, and numerous counties, cities, and special districts. I can't recall ONE instance where an owner (public or private) wanted out-of-scope construction work done for free. I have helped resolve scope of work disputes, but if the work requested is determined to be outside the scope of the construction contract the owners have paid for it without too much fuss.
On the other hand, I have had owners request (mostly unsucessfully) that I provide out-of-scope engineering services for free. The mind-set seems to be that since construction is tangible and visible it ought to be paid for, while engineering is intangilble, esoteric, and maybe even magic, and thus has little to no real value worth paying for. The worst case of this I can remember came from a Grade V wastewater treatment plant operator who sat on the board of special district I consulted for. He had worked with engineers for ~30 years, but was so clueless that he asked me questions like, "Aren't all engineers the same?", "Can't you just push a button on your computer to get the design?" (I wish), and "Why can't engineers eliminate change orders?"
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"Is it the only lesson of history that mankind is unteachable?"
--Winston S. Churchill
RE: retention in progress billing in a construction
RE: retention in progress billing in a construction
My understanding <G>.
Dik
RE: retention in progress billing in a construction