Retainage on Federal Contracts

Issue

Based on ACEC and industry initiatives, the Small Business Administration’s Office of Advocacy undertook an initiative to reform the withholding of retainage fees on federal architectural and engineering contracts. On March 19, 2010 a rule was published that amends the clause at FAR 52.232-10 “Payments Under Fixed-Price Architect-Engineer Contracts”. The change allows contracting officers to withhold up to 10 percent of the payment due in any billing period and eliminates requirements to withhold the entire 10 percent of contract value. This clarifies that retainage is optional and any amounts retained should not be held over beyond the satisfactory completion of the instant contract.

While this is a step in the right direction, the continued practice of retainage on federal contracts — in which a percentage of payment is withheld by the agency — is problematic. Prior to the rule change, the retainage fee was not released until the related project has been completed. It is expected that firms that serve as subcontractors on a federal project will have retainage on their portion of the work withheld by the prime contractor who has retainage applied to their payments. This practice creates an additional accounting burden on subcontractors by requiring them to “check-in” with the prime contractor on a regular basis to inquire whether the prime has been paid in full.

ACEC Position

ACEC supports the full repeal of retainage fees on federal engineering contracts or changes to those contracts.

 

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