Overview
This section outlines the policies for "retainage" in federal construction contracts, allowing Contracting Officers to withhold a portion of progress payments when a contractor fails to make satisfactory progress.
Key Rules
- Basis for Withholding: Retainage may only be applied when satisfactory progress has not been achieved; it cannot be used as a substitute for standard contract management.
- Contracting Officer (CO) Discretion: Decisions to withhold funds must be made on a case-by-case basis, justified by cause, and based on an assessment of past performance and future performance likelihood.
- Statutory Limit: The maximum amount of retainage is capped at 10 percent of the approved estimated progress payment amount.
- Adjustments: The CO may reduce or adjust the retainage percentage as the contract nears completion if the contractor shows improved performance or if alternative safeguards are available.
- Final Release: All retained funds must be paid to the contractor promptly upon the completion of all contract requirements.
Practical Implications
- Cash Flow Management: Contractors must maintain documented, satisfactory progress to avoid a 10% reduction in expected cash flow, which is a common pain point in capital-intensive construction projects.
- Performance Documentation: Because the CO must have "cause" to withhold funds, contractors have grounds to dispute retainage if the government fails to provide a performance-based justification for the withholding.