10% hold Back??

Which nation's military are you working with, SP?

Moose, I have realised today, how destroying the short cuts are. My apology. By mentioning word 'generals" i mean "general contractors" in the field of construction in Canada

Many prime contractors do a Hold Back regardless of the field of work. To my estimation this has been done so that they need have little of their own money in the mix, reason 1. Reason two is that for the entire time of the contract they are in a controlling position with the Sub.

When someone else is holding your money for whatever the reason, they have your attention for that time until you get you hands on it. Some companies keep you in money limbo for 30 to 60 days and that can include expenses above the contact value.

Keep them honest by getting the work done fast, get your money, and refuse to sigh another contract like that.

The answer is no, the holdback would not be applied to the wholesaler. The only way it could work would to have the sub pay 10% and you pay 90% or you hold back the 10% from a progress payment to the sub.

Even if the sub were paying for the materials direct then the wholesaler would still be expect to be paid in full. The wholesaler is not under the same contract. Their contract is completely seperate and governed by their quotation and your purchase order (agreement) to supply materials. Both have legal wording accompanying them, sometimes at odds with the other but that is another subject.

Since you are paying the wholesaler direct (I am assuming for material goods) then you are cutting out the sub and GC. The 10% holdback is only applied to the contract with the contractors. If the sub were paying for the materials then the hold back would apply to their progress invoice for the material once it was delivered on-site but they would typically be marking up the material cost by 5-10%.

Basically, it sounds as if you are helping a small companies cash flow and achieving a cost savings by paying direct and eliminating the "cost of money" and the overhead of processing the invoice, etc., to the sub.

Having worked in private and public/government construction as well as private and public/government engineering industries I have a bit to offer on this subject.

It is common in the construction industry to have retainage. By holding back 10% of the contract value the Owner is assured that they will get their job finished. Most contracts "filter down" this Owner required retainage to their subcontractors. Many suppliers don't care much for the retainage being held on their sales to the construction industry.

I have seen contracts that do not hold retainage on materials, but that causes bookkeeping headaches. If there is no retainage on materials and somehow, through no fault of the contractor, the materials are damaged who is responsible? Keeping the contractor responsible is the name of the game until the project is complete! The contractor keeps his subcontractors responsible to whatever level he/she remains responsible.

To say don't ever sign a contract with a retainage clause is the same as saying "I don't want to play with the big dogs" and keep yourself limited to small private projects where profit margins are depressed.

Thank you very much guys. I appreciate

Hi SP:

I may be able to add something to this. Everything Guest #5 said is true. Most General Contractors know they will have a 10% (varies) retainage clause. The GC is trying to help his cash flow by passing down this to his subs; and if you want to run with the big dogs, as Guest 5 says, you will probably have to accept this. HOWEVER, what the GC is NOT telling you is that contracts these days have a retainage clause, but a smart contractor will insist that the 10% retainage be put in an escrow account and, when the OWNER signs off on the job, the GC gets the 10% amount AND the interest! The OWNERS generally agree to this since it's the GC's money anyway. All the OWNERS want is control over the contractor until they accept the job.

However, two can play that game. Tell your GC you will accept the retainage only if the money is put in an escrow account. And you want the contractor to release the funds when the OWNER signs off the job, OR until (pick a date here), whichever occurs first. Most important to establish a date or, if the GC gets into a squabble with the Owner, you might not ever get your money. By the way, the GC can't get the money and run; that's why you use an escrow account. You can put some teeth into the date limit by charging interest after the date limit is passed. So, if all goes well, you get your 10% retainage and the interest.

Don't think you will tick off the GC; my guess is that he will be impressed with you and knows he is not dealing with some patsy he can push around. They will respect you and you will keep a good relationship with the GC. If you use the CSI standard forms, I believe there is a section containing all the language and instructions on how to work this. If the GC balks at this (maybe calling your bluff), tell him you will agree to a 1% retainage. At this point you will go back and forth and land somewhere at 5%, but I would still insist on an escrow account.

Hope this helps. Good luck.

Hank

Good Morning SP,

Some of the responses seem a little at odds to me I think because we are not sure where "you" fall in the hierarchy of the Owner, GC, sub, etc. You stated that you are working with GCs and you are paying directly for your subs wholesale purchases but it could be taken that you are the Owner or a sub to the GC with a sub of your own. A break down (a block diagram if it is complicated enough) would probably help a bit.