Masonry Magazine February 2001 Page. 41
The American Subcontractors Association, Alexandria, Va., has set its sights on the abolition of retainage - the common practice in which an owner or prime contractor withholds generally 10% of the value of the work performed and decreases the amount to 5% in the later stages of the job. Where abolition isn't possible, ASA wants all retained funds placed in interest-bearing, escrow accounts and ASA wants funds released early for work completed early in the project. Federal agencies no longer routinely hold retention during on-time projects, subs point out, citing that as further evidence of obsolescence.
"Typically, we are long gone by the time the job finishes," says David H. Bradbury, president of Precision Concrete Construction Co., Alpharetta, Ga. "Why shouldn't retainage be released?" he asks. In Bradbury's view the practice amounts to institutionalized usury and a shifting of risk that has nothing to do with the way responsibilities are outlined in contracts.
Bradbury's company generally performs $35 million worth of work each year, and it is owed $2.2 million year-round, $900,000 of it in retainage. At 6.3%, that is actually a very good collection record, bankers say. Nevertheless, it irks Bradbury. Other subs say they are continuously owed LET MY MONEY GO David Bradbury wants retainage reform. 30% of their total annual revenue. A medium-sized mechanical contractor that has a yearly volume of $20 million says its receivables rarely dip below 56 million, or 30% of revenue, with retainage comprising $1.4 million of that total. Smaller companies sometimes are owed even more. Subcontractors constantly are lugging around these bloated receivables. "If you war want to do $30 million worth of work, you better have $3 million in the bank," says Jim Davis, president of United Masonry Inc. of Virginia, Alexandria.
The injustice, complains Bradbury, is that subcontractors must pay their suppliers and labor crisply within 30 days or less but must wait months often for the final 10% that represents the profit on a job. Withheld funds under mine the spirit of cooperation on a project and duplicate the guarantees provided by bonds. "We are professionals and have longevity. We have payment performance bonds and have no problem with funds withheld for nonconforming work and performance," Bradbury says.
"Oh, bull," replies Rick Grebel, a veteran general contractor who is President of KCI Construction Co., St. Louis. "The subs want to penalize the whole general contracting community for the few that give them trouble," he says. "Our policy is to pay them whatever we are paid," says Grebel. He says he has seen subs hold back payment unfairly from their own suppliers. "Then if a lien is filed, I'm stuck paying twice. It's happened a few times."
Retainage is an important method of guaranteeing performance and is not abused, at least not in western Michigan, says David H. Gibbs, treasurer of Owen-Ames-Kimball Co., a Grand Rapids, Mich.-based general contractor. "I can't imagine operations without retention," says Gibbs. "It's part of what we do, and it's accepted and included and important to us." Other general contractors say the subs know the payment risks and the costs of money and factor that into their bids.
CONTRACTORS HAVE TO WAIT LONGER FOR THEIR PAY
66.5
61.2
59.1
59.1
44.9 49.1
43.8 48.2
53.9
49.5 49.7
43.8 46.9
1995
1996
1997
1998
63.4
45.9 49.2
47.7
1999
Specialty contractors
Heavy & Highway
Source: Construction Financial Management Association, financial survey results
All contractors
2000
53
MASONRY FEBRUARY, 2001 41
PHOTO TOP BY WW
WILLIAMS FOR GRAPHOTO BY NANCY SOULLIARD FOR EN