Construction Progress Payments and Need for Holdbacks/Retainage

[David S.]

I am about to enter a construction contract that should take about 4-6 weeks. For the sake of argument, let’s say the contract is for $100,000. The contractor’s proposed contract plans for four progress payments...on 25% completion, 50%, 75% and 100% completion. However, it does not provide for any holdbacks/retainage from each payment.

I have heard construction lenders will hold back from each draw.

Even though I am paying in cash, should I not require some sort of holdback (5%?) from each draw to protect myself from incomplete work and unpaid subcontractors/suppliers? And how long should I hold it for?

[Aaron C.]

Originally posted by @David S.:

I am about to enter a construction contract that should take about 4-6 weeks. For the sake of argument, let’s say the contract is for $100,000. The contractor’s proposed contract plans for four progress payments...on 25% completion, 50%, 75% and 100% completion. However, it does not provide for any holdbacks/retainage from each payment.

I have heard construction lenders will hold back from each draw.

Even though I am paying in cash, should I not require some sort of holdback (5%?) from each draw to protect myself from incomplete work and unpaid subcontractors/suppliers? And how long should I hold it for?

David, I'm a Subcontractor. When I work with General Contractors and Private Investors this how it's handled.

With a General Contractor, they hold 10% each progress payment they make. I then have to provide a release showing the amount I was paid each time. I get the retainer at the end once the punch list is completed.

With Private Investors, I submit my invoice for full amount and 20-day prelim. If they don't pay, I will lien the property. When they pay, I send a release showing I was paid.

It will depend on the agreement that you draft up with your contractor. If you go to the CSLB you will see the different kind of releases.

Hopefully this information helps..