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New retainage reform laws protect subcontractors

Post Time:Nov 12,2013Classify:Industry NewsView:49

So far this year, four states have passed retainage limitation policies that will help subcontractors receive full payment on projects. Officials from the American Subcontractors Association in Alexandria, Va., say the push for reform could lead to legislation in more states. Typically, owners and general contracts practicing retainage hold back a percentage of subcontractor payment—usually 5 percent to 10 percent—until the project is complete, and sometimes longer, says Colette Nelson, ASA executive vice president. “Retainage has a tremendous impact on the cash flow of any subcontractor,” Nelson says. “The rate of retainage is often higher than profit margins. Until a sub collects, they have not made any money on the job.” New Mexico instituted in April the most widespread legislation that prohibits retainage on both public and private construction with two exceptions: residential construction projects with four or fewer dwellings and Department of Transportation projects. The other three states, Kentucky, North Carolina and Tennessee, passed legislation on the percentage of payment that can be retained and the length of time owners or contractors can hold the money, according to an Oct. 8 ASA release. Read more about the legislation here. Retainage is tough for contract glaziers, says Art Rouse, branch manager for Binswanger Glass in Charlotte, N.C., and immediate past chairman of the ASA of the Carolinas. “For a company like ours, we might make 6 [percent] or 7 percent [profit] at the end of the year,” he says. “Our suppliers don’t let us hold 10 percent out. We have to pay in full for the materials before the job, and pay labor as we go. Yet, sometimes we’ll have to way a year to get paid in full on a job,” Rouse says. In extreme cases, retainage can even put a subcontractor’s business at risk, says Greg Nash, president of ASA of Tennessee in Nashville. “There is a saying, that ‘a subcontractor can go broke making money.’ In essence if you have 10 percent retainage on all projects, with 8 percent profit on all jobs, eventually you will go broke, because you’ll have no cash to pay bills, while you’re making money. Subcontractors may have to borrow money to complete a job, pending the release of retainage,” Nash says. Many general contractors don’t exploit retainage, holding funds from subcontractors unnecessarily. Some contractors, however, do abuse the practice, says John Gillis, a contract lobbyist for the ASA of New Mexico. “The general tenor of relationships between subs and general contractors is quite good, but there are horror stories,” Gillis says. “You might have an architect, acting as the owner, refusing to pay a subcontractor until they put an extra coat of paint on a door.” In some instances, owners or contractors may even hold payment to all subcontractors because of an issue with one trade’s work. “The concern about retainage was the amount being held and the limitless amount of time that the money could be held at the end of a job,” Gillis says. Since the law passed, Gillis says he has received several calls from associations in other states looking to push for similar legislation. “It’s a trend like any other statute,” he says. “Once one group figures out a way to get it passed, others can follow the example. First it might be limitations of the use of retainage, and maybe other states will follow New Mexico and outlaw retainage entirely.”

—By Katy Devlin, e-Newsletter EditorShare this article:

Source: http://www.glassmagazine.com/news-item/commercial/new-retainage-reform-laws-protect-subcontractorsAuthor:

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