Say you're working for a local municipality which is holding a large retainage or your payment applications. Do you know that at 50 percent completion "… a public entity must reduce to 5 percent the amount of retainage withheld from each subsequent progress payment made to the contractor". Generally under construction contract law, the term "50-percent completion" means the point at which the public entity has expended 50 percent of the total cost of the construction services purchased as identified in the contract, together with all costs associated with any existing change orders and other additions or modifications to the contract.
Additionally, Florida Statutes state that "[a]fter 50-percent completion … the contractor may present to the public entity a payment request for up to one-half of the retainage held by the public entity. The public entity shall promptly make payment to the contractor, unless the public entity has grounds, pursuant to subsection for withholding the payment of retainage."
As a general contractor, you may elect to withhold retainage from payments due to your subcontractors at a rate higher than 5 percent. The specific amount to be withheld must be determined on a case-by-case basis and must be based on your assessment of the subcontractor's past performance, the likelihood that such performance will continue, and your ability to rely on other safeguards. You must notify the subcontractor, in writing, of any determination to withhold more than 5 percent of the progress payment and the reasons for making that determination, and you cannot request the release of such retained funds from the public entity.
All these rules apply to public entities. On a private job, retainage, both as to amounts withheld and amounts released, is strictly based on what you contract. While most contracts call for the owner to retain 10 percent of each payment request till final completion, know that you are free to negotiate both the amount to be withheld as well as the timing on when a portion or all of that amount is released.
Alexander Barthet is a Miami-based construction attorney, Board Certified in Construction Law. He publishes regularly to his blog, TheLienZone.com.