How Does a Second‐Subcontractor Protect Their Receivables When there is Retainage
Regardless of what rung of the ladder you're on during a construction project, it's important to understand how you protect your receivables or how much you'll get paid. Retainage is normally a 5% to 10% portion of a contractor's compensation that is held back until work is finalized. This doesn't just include the specific work of that contractor but the work of the entire project. This can put some contractors in a compromised position, especially considering that many contractors are already cash poor and operate on a job‐to‐job basis. This is especially true considering that it's possible for a subcontractor to finish his work and the end of the entire project may take another six months to a year for completion.
This is just an example, but it's a very real possibility. What can a second-tier contractor do to ensure they receive the rest of their money?
Many subcontractors state that they don't even receive the full amount of retainage withheld on the percentage of their
projects. Additionally, subs had to wait anywhere from 30 to 900 days after the completion to collect the final amount
due. The average wait time was 167 days. That's no small amount and can significantly affect their cash flow and business.
In some cases, contractors reported a wait time of up to 2500 days. That's a seven-year waiting period. Truthfully, this is
enough to put some subcontractors out of business. What can be done in these cases?
What You Can Do
While this practice is done within reach of the law, there are certain things a subcontractor can do to mitigate the blow. Legally,
there's nothing they can do to get out of the withholding ‐ all that can be done is to prepare for it.
It seems that the legalities of this practice and the mechanic's lien laws disagree with each other. On the one hand, you have the lien laws that protect contractors and give them the option to pursue their pay from the owner. On the other hand, you have owners and other members that are allowed to withhold money from contractors.
What would even happen if you attempted to file a mechanic's lien in this situation? In many cases, the entire lien period would expire before the construction project is even finalized. Can you even file a lien without the project being finished? This creates a grey area. In some states, action can be taken regarding the mechanic's lien if the law states that the lien can be filed for any and all money owed for the project. Make sure you always file your preliminary notice according to state law. Remember that the lien dates won't extend just because you're waiting for retainage. Following the laws and dates give you the best chance to receive this money along with any additional amounts that could be owed. Otherwise, the best thing you can do is attempt to save extra money and prepare for the blow.
Ask around when dealing with a new owner or contractor. You may be able to gain enough intel to ensure that they don't have a habit of creating long periods of retainage. Otherwise, your best bet is the right amount of preparation. No matter what size your construction company is, Nationwide Notice, Inc. helps secure your lien rights. Nationwide Notice, Inc. is dedicated to assisting construction companies to protect their receivables and get the lien released based on the state's laws. To find out more about the services we offer, check out this page . You can also learn about what makes us different here - get started with us today.