Retention Management Tactics:
Don’t Deal with One-Off Developers and Owners. If you work with people who are not making construction a continuous business, you may want to say “pass” or propose eliminating retention all together. To justify eliminating retention, just point out that the owner is cash ahead any one point of a project. To work with these client types invites more problems than just retention abuse.
Condition Your Bid: Managing retention starts at the bidding stage. A bid proposal may contain language that states your retention policy. This allows for a frank discussion with the client about this issue. More people are taking this course of action and use a twofold approach:
• Reduced retention – typically from 10% to 5% at the midway point of the project. The mid-way point should be calculated by the Percent Complete Method (versus time).
• All punch out items left after 3 months go to warranty and an appropriate value is held back. Three times the estimated cost is a good guideline of the hold back. Retention is subsequently released at this time.
• If want to forward a discussion about interest charges on money not paid, use double the prime rate as your interest. It is part cost of money and part penalty.
No New Bids. This may be a game of chicken with the client. However, it is perfectly fair to not bid more work as payments due are not made.
Personal Presence: sitting in someone’s office until that pay you is awkward and confrontational but, it works. Let the client know that you will be coming by for your retention and if it is not there you will wait. Tell them you are serious. Be friendly but, firm. If you have patience, this eventually works although you may have to lunch delivered to show how serious you are.
Say no to contracts that don’t clearly outline the way retention is handled. At a minimum, redline the contract and then have a face to face meeting to negotiate.