Framers Don

More and more subcontractors are speaking out about the hardships they face from the ãnormativeä practice of retention.

Retention is the process of withholding a certain percentage of payment on a project from each trade until a projectâs completion is reached. Commonly included in construction contracts ö especially in public works jobs ö the theory behind retention is to the developer/owner from risk and liability.

Retention found on commercial projects more commonly than on residential, although some homebuilders in the Las Vegas valley do require it.

For framing contractors in general and commercial framers specifically, retention can be doubly troublesome.

Because the framer is one of the first tradesmen on and off a project, the wait can be financially excruciating. Furthermore, because southern Nevadaâs fast-paced construction climate invites fierce competition and can lead to slicing and dicing profit margins to razor thinness in order to land a job, the implications from retention foster nothing short of aggravation.

A retention agreement usually states that the developer will withhold 10 percent of payment until the projectâs completed, which typically means not until a certificate of occupancy has been issued.

Should an issue arise between another subcontractor and the general contractor, the general contractor and the developer or the project and the building department that inhibits the acquisition of the COO, then naturally the retention is held until the problem is resolved.

ãWe have zero control over when a certificate of occupancy is acquired on a project,ä said Trey Harris of TRC Faming.

Hypothetically speaking then, a developer could erect a $1 million project and hold onto a $100,000 retention until the building receives its COO, even though he has it leased out or sold or at any rate ö and most importantly ö has the finished product.

Meanwhile, the framer along with other subcontractors may have been completed with their portion of the work on that project for six months or more.

Suppose a framerâs portion of that $1 million job only came to $100,000 and thus its retention is $10,000. Whether this amount is significant greatly depends on company size, and may have a direct correlation to the companyâs financial well being.

Suppliers are in the same boat as contractors when it comes to cash flow challenges

ãWhen I purchase lumber supplies, I have an invoice on my desk the next day and my company must have it paid in 10 days. I sell it to the framer and I wait then given a Înormalâ pay schedule 30 to 60 days to be paid from the date of delivery,ä said Sandlin Lumberâs Jim Coble.

Another point of contention is that some specialty contractors can account significant dollar amount contracts, and as their phases are completed they are inspected and approved prior to the commencement of the next phase. This, and the fact that the contractors are bonded, insured and held to a warranty should something unforeseen arise, alleviates virtually all risk from these tradesmenâs work on the developerâs. Still, the retention is withheld.

ãI have never experienced a client using my retention as a means to get me to finish or repair my work. In fact they hold all or a portion of the other 90 percent to accomplish this,ä said Harris, ãIn reality the 10 percent withheld is usually more than my profit from the contract and I am forced to pay out more money than I receive and must sit tight and wait months to recoup my expenses on the project.ä

While not commonplace, it is not unheard of for a developer change the scope of work by revising or adding to the building design and further prolonging the project with an uncertain end, which ultimately postpones the release of retention.

ãI currently have hundreds of thousands of dollars of my cash flow tied up in retentions and with no sense of certainty when any will be released,ä said Harris.

Current FCA President Richard Thomas sympathized, ãUntil two weeks ago I had $800,000 tied up in retentions from a project that began at the beginning of the year, some has been released, now I am waiting for just under $400,000.ä

Proposed recommendations on how to make retention more manageable include legislative action, forcing developers to pay earned on retention held and releasing retention following the final inspection approval for a particular trade.