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I am a one man shop offering consulting services. I see that there is retainer for service and retainer for access. In engineering, which is usually provided and what are some of the does and don'ts with retainers? How much is usually put into a retainer (%)?

RE: Retainers?

Don't know if there's a standard, but I'd be interested to hear if there is.

My stance is this: it depends on the clients. Most of my business is with repeat clients with whom I have a good working relationship. They are also (usually) architects, and so the pay structure for design/consulting is typically a pay-when-paid deal. So they often don't have the cash to put up a retainer anyway. So I don't ask for one. We determine a billing schedule - percentage or time based, project milestone or monthly, etc. - and I bill according to that. They, in turn, bill their client, and eventually the money trickles back to me.

If I'm working with clients I've had bad experiences with for payment (I must be hurting for work in this case), I'll either charge a retainer (preferably equal to the anticipated cost for the first billing cycle) or require payment up front. If they're late on a payment, work stops until they catch up.

RE: Retainers?

On the basis of small-ish project work for sole practice:

1. Yes, charge a retainer fee. Percentages or fixed, it all depends on the project. I typically shoot for the 25%-50% range for one-off project work. It helps engage the client beyond the kicking tires phase, as much as it also puts a fire under me to start working.
2. It also depends on the client as phamENG points out. They may work on a pay-when-paid model. If so, that's the way it is but have a deliverable schedule for the payments.
3. Retainers are great for helping to limit losses if a client cancels a project or even postpones it. I think I was surprised how often projects can get shelved.

RE: Retainers?

I have used retainers for many years to weed out the serious clients and cut my losses. 25 to 50% is reasonable, depending on the size of the project, and the retainers are not refundable. Retainers also help to manage cash flow. I do not take on projects where I do not get paid until “they” get paid. Way too much room for losses and stress there - less control of the situation.

Mike McCann, PE, SE (WA, HI)

RE: Retainers?

msquared48, I try to do the same as you mention if I can. An example for me would be working directly for a home owner on a residential addition. I am curious though, if you are able to avoid "pay-when-paid" projects completely, what is the nature of most of your projects, what types of projects and what types of clients, if you are willing to share. I am curious, because my experience has been that architects are completely "pay-when-paid" toward their structural engineering consultants. Only one-man-operation architects have ever paid me before they have been paid, and even then, they make it a point to let me know that they have not been paid yet, and so they are doing me a "favor" by paying me.

RE: Retainers?

Just to clarify - I consider "paid-when-paid" and "paid-if-paid" to be two different things. I've had architects/prime consultants try to pass of a paid-if-paid contract on me, and I won't do it. There's always a cutoff. I usually set it to 90 days, or 15 days after receipt of payment from their client, whichever is earlier. If their client hasn't paid the architect in 90 days, then that's the architect's problem. The architect is my problem at that point.

For the right mix of risk/reward, I might accept a paid-if-paid...but part of that reward (okay, all of that reward) will be significantly higher profit margins than I typically shoot for. A big part of long standing relationships is the ability to trust the other party to pay. If that's being ignored (because my client's ability to pay is 100% dependent on their client), then I'm effectively in a series of one-time client relations with a familiar face each time.

RE: Retainers?

I rarely use a retainer unless the customer seems sketchy.
Too much paperwork and accounting involved. Historically, I maybe get stiffed for under $1,500 per year.

RE: Retainers?

Quote (Just to clarify - I consider "paid-when-paid" and "paid-if-paid" to be two different things.)

I never work that way... the bill is due 30 days after submitted. If payment is not received, the next 30 day there is interest attached, compounded monthly. My deal is with the Architect, not the client. Works the same way if I'm working for the client.

I should have added that my first invoice notes that interest will be charged on outstanding accounts after 30 days.

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RE: Retainers?

At my old firm for new small commercial business clients it would be 50% up front and 50% prior to delivery of final report for small jobs. For larger jobs we would still have the 50% retainer and then bill monthly, so when we were half done we would have invoiced for 100% of the contract value, going from 50 to 100 percent completion we would use the retainer as payment.

RE: Retainers?

Our typical retainer is 10 hours of engineering time. We credit the retainer back on the invoices at between 10 and 25% for each invoice until the retainer is at 50% left. We save that and credit it on the final invoice.

I also have a statement on my retainer agreement that says the retainer is not a guarantee of specific availability and schedules must be coordinated in advance.

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