Our team recently attended an ASA roundtable event generously sponsored by Billd, a key player in construction finance. This gathering delved into navigating bill retainage amid legal changes, offering insights on strategic negotiations, and optimizing cash flow. The event emphasized the importance of staying informed and utilizing innovative financial solutions in the ever-evolving construction finance landscape.
In the ever-shifting terrain of construction finance, understanding bill retainage is paramount. Recent legal shifts underscore the need for contractors to send a retainage letter at project initiation. This practice, withholding a percentage of payment until project completion (which may extend from 6 months to 2 years), demands a strategic and adaptive approach.
Negotiating retainage terms, especially in private projects, is an art. While the standard is often 10%, understanding that general contractors are not legally bound by this figure opens the door for strategic negotiations. Consider negotiating retainage based on the completion of your scope of work on the front end. Additionally, offset clauses, diversification in general contractors, and negotiating retainage based on materials, with a focus on supplier invoices, add layers of protection.
The intricate nature of retainage includes the dilemma of open-ended "pay when/if pay" clauses. Retainage, typically deposited into an interest-accruing account, often benefits the holder more than the contractor. Choosing banks familiar with construction dynamics is crucial to navigate this intricacy successfully. Furthermore, negotiating an initial 5-10% for early pay can significantly alleviate cash flow constraints, especially for subcontractors dealing with unforeseeable factors.
Recovery strategies involve sending bond notices, liens, and implementing a third-month notice if payment suspicions arise. Crafting a change order process with change order logs every two weeks in proposals and addenda prevents disputes and ensures compensation for work done. This proactive approach optimizes processes and ensures contractors are at the forefront of getting paid.
Mastering the intricacies of bill retainage requires a holistic and strategic approach. By navigating legal changes, engaging in strategic negotiations, implementing cash flow strategies, and optimizing recovery processes, contractors can ensure financial stability in the dynamic world of construction.
The American Subcontractors Association of Austin, Texas is the regional chapter representing subcontractors and suppliers in the Austin area. The American Subcontractors Association promotes and protects the rights and interests of subcontractors and suppliers by building strength in community through education, legislation, networking and professional growth. Through this, they maintain their slogan “Better Construction Through Fair Construction.”
Tackling one of the biggest pain points in the construction industry, Billd offers commercial subcontractors financing terms that finally align with their payment cycles. Supply chain finance has long been broken in construction, leaving contractors footing the bill for materials and labor far before they're paid for their work. With a flagship product that offers 120-day terms on material purchases, subcontractors can now improve their cash flow to take on larger projects, finish projects faster, and grow their business.