Progress payments under construction contracts
Retainage on construction contract progress payments is a discretionary tool for unsatisfactory performance, capped at 10%, and must be promptly released upon contract completion.
Overview
FAR 32.103 outlines the rules for progress payments under construction contracts, specifically addressing the use of retainage when a contractor's progress is unsatisfactory. The regulation allows contracting officers to withhold a portion of progress payments if satisfactory progress is not achieved, but emphasizes that retainage should not replace effective contract management. The decision to retain funds and the amount withheld must be made on a case-by-case basis, considering the contractor's past performance and the likelihood of continued performance issues. The maximum retainage is capped at 10% of the approved estimated amount, and this percentage may be reduced as the contract nears completion if performance improves or alternative safeguards are available. All retained funds must be released promptly upon completion of contract requirements.
Key Rules
- Retainage for Unsatisfactory Progress
- Contracting officers may retain a percentage of progress payments if the contractor's progress is unsatisfactory.
- Case-by-Case Determination
- Decisions to withhold and the amount retained must be based on individual contract circumstances and performance assessments.
- Retainage Limit
- The amount withheld cannot exceed 10% of the approved estimated amount.
- Adjustment of Retainage
- Retainage may be reduced as the contract nears completion if performance improves or other safeguards are in place.
- Prompt Payment of Retainage
- All retained amounts must be paid promptly once contract requirements are fulfilled.
Responsibilities
- Contracting Officers: Assess contractor progress, determine if retainage is warranted, set and adjust retainage amounts, and ensure prompt payment of retained funds upon contract completion.
- Contractors: Maintain satisfactory progress to avoid retainage and fulfill all contract requirements to receive retained funds.
- Agencies: Oversee contract management practices and ensure compliance with retainage policies.
Practical Implications
- This section ensures that retainage is used judiciously as a performance safeguard, not as a routine management tool. Contractors should be aware that unsatisfactory progress can lead to withheld payments, but also that improvement and completion will result in prompt release of retained funds. Common pitfalls include excessive or unjustified retainage and delays in releasing retained amounts after contract completion.