so it’s possible for the owner to take title to goods but only be
paid 90% or 95% of their cost.
Retainage After Partial Occupancy
Most construction contracts allow an owner to take partial
occupancy of work. One of the items included in a standard
form of contract (e.g., the standard American Institute
of Architects contracts) is “release of retainage” for such
accepted work. 21
However, this requires the parties to agree on the value of
this occupied work to the contractor and various subcontractors, which is not always easy to do. As a result, it is
Retainage & Lien Waivers
Many lien waiver forms ask the waiving party to acknowledge
that payment has been received for all work through a certain date (although this isn’t generally possible if the form is
mandated by state law).
If retainage is being held, then such a statement can’t be truthfully made; this wording could eventually lead to payment
delays. Forms that limit lien waivers to “payments received”
avoid this problem.
Suppliers that Refuse Retainage
GCs withhold retainage from their subcontractors, and subcontractors withhold retainage from their subcontractors.
But in almost every project, a vendor or supplier usually
refuses to allow retainage to be held, which forces the party
that hired that vendor or supplier to advance more money
downstream than is being paid by the upstream customer.
Alternative solutions are to:
1) Ask the owner to purchase those items directly,
(i.e., the contractor is only paid for the labor); or
2) Have a carve-out for those vendors/subcontractors
so that they are still part of the contractor’s scope,
but retainage is not held on them.
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