[rangersteve]

Hello, New guy here I have been a residential carpenter for almost 20 years, the past 2 I have been contracting kitchen remodels. I go in gut the existing kitchen down to studs, move and add electric, usually add a sink in the island, drywall, set cabs, appliances etc.
I have a potential client that wants to include a 10% retainage for 30 days after completion into his contract. I have only run into this issue once in my career and that was when I framed a, apartment building about 10 years ago. None of my peers that I have talked to have been willing to do this.
Is this common practice? Any thoughts about this issue?
This project would be approx 6 weeks in duration, the homeowner would live on site and my contract would not be including appliance purchase or cabinet purchase and would be between 20-25g.

 

[Tom R]

Hmm, - - can't say I've ever been asked that, - - I guess I'd have no real objection, - - sounds like he's just worried about not spotting some things 'til after you're already paid and gone, - - and doesn't know you good enough to trust you'd come back. If he's getting a Bank Loan to do the work, - - they may be the ones requiring it.

 

[Teetorbilt]

No retainage, ever. My contract has been posted, look it up in the archives.

 

[mdshunk]

Sounds like a guy that's looking for a legal way to nit-pick at you for a month or so. Might be okay... might be a nightmare. I can remember my father quite literally painting over shadows in a living room 30 odd years ago for a lady with a retainage clause.

 

[Speedy Petey]

This is what a punch list is for. Keep 5-10% back until the last day. Make sure you are fully done and the customer is happy.

Unless you know these folks and their history I would not do it. They want refrences and proof of insurance, etc... Why can't we protect ourselves as well.

 

[Mike Finley]

I would be all for this as long as I was able to mark up the final price by an additional 10%.

 

[PipeGuy]

It's standard in my business, and it's a friggin' nightmare - though I'm sure I'd feel differently if I was getting a down payment to begin with. I'd say avoid it if possible. It certainly doesn't seem to be typical in your line of work.
I'm curious, what does the potential customer do for a living? Lawyer? Contractor?

 

[rangersteve]

The homeowner is approx 55, anal, retired, former commercial alarm business owner. He has way too much time on his hands and calls daily with questions. I fully understand the purpose of retainage. However, this guy will be living in the home while I work and will also be scouring my work on a daily basis. Hence the punch list at final time.
My standard payment schedule for this size of job is a third/ third/ third with a carryback of twice the value of any back ordered items which are usually one or two cabinet parts. I do top quality work and with the homeowner going through it with a fine tooth comb on a daily basis I don't believe that there would be any unseen defects that would arrise until 30 days after completion.
I agree with mike f that I would be willing to do a retainage if I could jack the price up an additional 10%

 

[PipeGuy]

I agree with mike f that I would be willing to do a retainage if I could jack the price up an additional 10%

Do jut that and offer him a 5% discount if he pays in full within a week after your finish. You might discover that the piece of mind he gets from retainage has a $value to him.

 

[Grumpy]

Retention is quite common for large scale builders and GC's. They figure your profit is 10% so they want to hold onto it until the job is done incase they need you to come back for any reason. Usually retainers are returtned upon "substantial completion". If you are going to agree to the retainter you better find out exactly what substantial completion is.

One of my construction mngt teachers was this type of GC working for a large company. He stated on one project which took multiple years to finish they made it a point to hire as many new sub companies as possible. Their hope was that the companies would fold some time before substantial completion which was a few years later. He said quite a few of the subs did fold each leaving a few thousand in the GC's bank.

Lovely lovely new construction!

 

[slickshift]

The homeowner is approx 55, anal, retired, former ...business owner. He has way too much time on his hands and calls daily with questions....However, this guy will be living in the home while I work and will also be scouring my work on a daily basis.

Boy do I know this guy
Are you sure you want to be in his (unusable) kitchen for 6 weeks with him there?
There is really no reason for retainage for this guy if he's there
I guess I wouldn't blame someone for wanting to cover their butt
But I think this guy just likes being the puppet master

 

[rangersteve]

I don't mind working with a person like this. Last year I did a similar job with an older retired auto body shop owner. First day on the job the guy pulled up a chair, sat and watched us all day and every day. It was a little disconcerting but we got used to it. It helped knowing that he was also a tradesman.

 

[Teetorbilt]

My bro-in law builds hospitals and other medical facilities. I used his contract as a basis for mine, no retainage.

 

[ConcreteGuy]

Retainage can be negotiated. Your contract value, duration, scope and phase have a lot to do with it.
A foundation contractor may have his contract written to recieve retainage xx days after completing his work, allowing time for defects to become evident if they exist. But typically, you have to wait for substantial completion just to get 5%, then 30 days from project closeout you get the rest.
Agree with price inflation to cover retainage.
Not sure I'd work for this guy. I've turned down jobs when I suspect an anal Engineer, which I can tell by the plan notes and specs.

 

[AAPaint]

Interesting topic for a new business owner like myself. I have never run into something of this sort. Of course, it's alot different with painting. Either it's right when I walk the customer through the last time or I touch it up right then and there. Honestly, I would not be willing to have someone hold any of my money for whatever reason they may deem viable. I offer all my customers a two year warranty on the work I do. If something comes up, they can call me. If it doesn't come up withing the first 5 days after the job, they are subject to an additional charge as stated in my contract. (thanks to premierpainting for that) I wouldn't know what else to say if someone hit me with a trick like that while bidding a job....I'd prolly say "umm.....NO!"

People like that really kill me. You don't go to the deli and say "make me a sandwich and I'll pay part of it now, the rest after I eat it"

 

[Mike Finley]

This is what Michael Graves says about it:

Customer wants retainage in contract

The customer wants a retainage clause put in the contract. My question is, why? “Well, that’s the way it is done. That way I’ll know that you will finish the job or make any corrections to the job that I want done.” My response is, “What a great way to start a business relationship.”

First off, let’s be clear about one thing. Almost every state requires that contractors guarantee their work for one year. That being the case, why is retainage necessary? No it is not standard practice in construction. Yes it is quite common on larger jobs and government jobs, but not all of them. And, most importantly, it is not requested or required on the majority of the construction work that goes on in this country.

The reason retainage continues on commercial and government contracts is that the people responsible for those jobs, the architects, engineers, governmental procurement and purchasing officers, stick together. I have never met a contractor that liked to work on jobs with a retainage clause. Many if not all who do that kind of work are resigned to believing that this practice is part of doing business, and they accept it. Why? Why is it necessary?

What do you suppose would happen if every time the “powers that be” put out a contract with retainage clauses, no one would submitted bid. Trust me, the retainage language would go away real quick.

Now the reality is contractors won’t stand up and stop participating. Most don’t even consider it an option to refuse to “bid” these jobs. They keep signing contracts with retainage clauses, letting the other guy use their money (interest free) and use the retainage lever to get stuff for free.

Let’s be clear. I have no problem with any contract written by anyone else as long as it is clear, concise and a win-win agreement for all involved. How does a contractor win participating in a job with a retainage clause? He or she doesn’t. All too often I see the retainage clause used to “keep the contractor in line.” It is all too often used to force him or her to do things at or near the end of the job that are not in the contract.

Enough ranting and raving about one of my pet peeves. Bottom line is: don’t get involved in any contract where the owner, architect, engineer, designer or anyone else in a decision making position wants retainage in the contract.

 

[ProWallGuy]

This is what Michael Graves says about it:

Customer wants retainage in contract

The customer wants a retainage clause put in the contract. My question is, why? “Well, that’s the way it is done. That way I’ll know that you will finish the job or make any corrections to the job that I want done.” My response is, “What a great way to start a business relationship.”

First off, let’s be clear about one thing. Almost every state requires that contractors guarantee their work for one year. That being the case, why is retainage necessary? No it is not standard practice in construction. Yes it is quite common on larger jobs and government jobs, but not all of them. And, most importantly, it is not requested or required on the majority of the construction work that goes on in this country.

The reason retainage continues on commercial and government contracts is that the people responsible for those jobs, the architects, engineers, governmental procurement and purchasing officers, stick together. I have never met a contractor that liked to work on jobs with a retainage clause. Many if not all who do that kind of work are resigned to believing that this practice is part of doing business, and they accept it. Why? Why is it necessary?

What do you suppose would happen if every time the “powers that be” put out a contract with retainage clauses, no one would submitted bid. Trust me, the retainage language would go away real quick.

Now the reality is contractors won’t stand up and stop participating. Most don’t even consider it an option to refuse to “bid” these jobs. They keep signing contracts with retainage clauses, letting the other guy use their money (interest free) and use the retainage lever to get stuff for free.

Let’s be clear. I have no problem with any contract written by anyone else as long as it is clear, concise and a win-win agreement for all involved. How does a contractor win participating in a job with a retainage clause? He or she doesn’t. All too often I see the retainage clause used to “keep the contractor in line.” It is all too often used to force him or her to do things at or near the end of the job that are not in the contract.

Enough ranting and raving about one of my pet peeves. Bottom line is: don’t get involved in any contract where the owner, architect, engineer, designer or anyone else in a decision making position wants retainage in the contract.

Mike, that would be Michael Stone, and yes I get his newsletter too. Good stuff, except for last months tips on dressing like an ape and setting up at a state fair.

 

[soxfan]

I can't say I'm totally against it even though I choose to decline work from anyone who requires one. If I felt I had to accept a job with retainage I would need proof that the money is in an interest-bearing escrow account of some kind rather than just sitting in someone else's pocket.

The way I see it is that Citybank and the like make all of their money by holding someone else's money. They are happy to compensate the people who have entrusted them with their cash. Why should the company requiring the retainage be held to a different standard?

Interest free loans are un-American. :cheesygri

 

[Mike Finley]

Mike, that would be Michael Stone

Thanks, where did I get Graves from? Brain fart.

 

[Blackkat-1]

A 10% retainage is standard practice in my business (NYCity) but it is usually linked to the punch list. My contracts stipulate that there will be ONE punch list and that at 5% completion of that punch list the funds will be released with the balance paid at completion of the punch list. No other punch list will be accepted until full payment is received. I would never accept a 30 day retainage clause.

Tom