Retainage is the withholding of a portion of funds due to a contractor or subcontractor until the construction project is complete. It serves as a financial incentive to ensure satisfactory completion of the project. This article contains an overview of the following processes:
Project Setup: How to Set Up Retainage
Draw Cycle: How Retainage Impacts Balances
Draw Cycle: How to Release Retainage
Draw Cycle: Understanding Retainage within a Draw
Note: AIA Line Items do not follow these rules, as retainage is built into the draw request. Any retainage held is entered as a cumulative lump sum from the G702 in the draw request. More information on AIA line items can be found here: Budget Item Types
Project Setup: How to Set Up Retainage
To enable and set up retainage in a project:
In the Budget Setup section within Pending Drafts, click the Retainage tab at the top of the project budget screen.
Select the checkbox to Enable Hard Cost Retainage.
Enter the Default Retainage Percentage, which will apply to all Hard Cost line items.
If the percentage varies for individual line items, you can adjust it within the Budget section.
If the retainage percentage needs to be adjusted during the Active Construction phase, Lenders can modify it via the Adjust Budget option.
To Adjust Retainage in a project:
On the Budget Tab, select Adjust Budget.
Click the Retainage button to update or change the default retainage percentage for all Hard Cost line items.
You can also adjust the retainage percentage at the line item level by scrolling to the far right of the budget and modifying the percentages for individual items.
Once satisfied with the changes, save the updates.
Draw Cycle: How Retainage Impacts Balances
Built tracks retainage amounts separately from the funded amounts due to the nature of retainage being for completed work that has not yet been funded. The system handles retainage in one of two ways:
Scenario 1: Draw Created by Builder/Borrower
If the draw is created by the Builder/Borrower, the original draw amounts will include retainage.
Upon submission, retainage percentages are netted out from the request amounts at the line item level and moved to the Retainage Balance.
Scenario 2: Draw Created by Lender
If the draw is created by the Lender, enter the gross draw amount (inclusive of retainage).
To calculate retainage at the line item level, select Recalculate Hard Cost Retainage. This will net out the preset retainage percentages into the retainage balance and update the draw request amount to reflect the retainage held.
Draw Cycle: How to Release Retainage
During the draw cycle, retained funds accumulate in the Retainage Balance column. When it is time to release the retainage, follow these steps:
Steps to Release Retainage:
In the Manage Draw screen, use the Retainage Released column to release funds.
The amounts entered in this column will reduce the retainage balance and be treated as a standard draw to be disbursed to the Builder/Borrower.
Draw Cycle: Understanding Retainage within a Draw
When Retainage is added within a draw, the Draw Request Amount in the Budget section of the draw will differ from the Draw Funding Amount. The Draw Funding Amount within the draw will reflect the Draw Request Amount, net Retainage Added.
Frequently Asked Questions (FAQs)
How is Retainage calculated?
Retainage is typically determined in the Loan Agreement, and is calculated by withholding an agreed upon % of funds from a draw request until a predetermined time. This percentage is defined as described above.
How do you draw on retainage?
For a Lender, Retainage can be drawn upon by populating the Retainage Released column for the amount they intend to disburse. This amount will reduce the existing Retainage Balance once disbursed.
Is it net or gross?
Net draw amount is the funding amount disbursed to the builder/borrower. Gross draw amount is the total work completed for the current draw request, without retainage taken.
How can I request a retainage release?
Retainage releases are handled two different ways. Your lender has the option of allowing Builders/Borrower to request, thus providing access to these users the ability to request like a standard draw request. Lenders not allowing this access must complete the retainage release themselves via Manage Draw>Budget Details>Retainage Release column.
If a lender enters the draw request on behalf of the B/B, how can I trigger the system to calculate the default retainage for me?
If a Lender enters the Draw request on behalf of a Customer, they can trigger the system to calculate the default retainage by populating the Draw Amount column with the ‘gross’ amount (inclusive of retainage), and then selecting the ‘Recalculate Hard Cost Retainage’ button.
Is it possible to enable retainage on a project that is partially funded?
Yes, it’s possible. There won't be a separate retainage line item. Instead, a column will be created attached to each hard cost line item (as would happen if retainage was enabled from the start of the project). Any future draws will account for the retainage, though historical draws would need to be manually amended to add retainage.
Does my inspector see/approve the retained amount when an inspection is requested?
No, the inspector will see the gross draw amount. The gross draw amount is truly work completed that draw, so we want the inspector to be reviewing total work complete.
Does my inspector approve the full draw request amount including retainage or the draw request net retainage?
No, the inspector will approve the gross draw amount, inclusive of retainage.