Reducing retainage

A summary of a proposed budget bill amendment

By Donald Croysdale

Retainage is the holding back of a portion of the amount earned by the contractor, even though the contractor has properly completed the work. Wisconsin statutes require public owners to hold back 10 percent of the money earned by the contractor on the first 50 percent of the project, but don’t require retainage on the second half if satisfactory progress is being made.

The premise was that contractor profit margins are 10 percent. But this is not the case. Studies show that contractor pretax profit margins vary from 2 percent to 4 percent. The practice of holding back retainage, then, forces contractors to borrow on their credit lines simply to meet weekly payrolls. This is a particularly tough financial burden for smaller, specialty contractors, including minority contractors, with limited and costly bank lines.

The ASA has proposed changing the retainage percentage to 5 percent on the first 50 percent of the project. This revision in the retainage percentage will ease an unfair funding burden on contractors.

Reducing the retainage percentage will benefit general contractors and specialty contractors alike. Whether the economy is robust or slowing down, this proposal provides cost-effective relief both for contractors and for taxpayers.

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