Office of Program Policy Analysis and Government Accountability
Office of Program Policy Analysis and Government Accountability

Inflexibility in Contracting and Retainage Practices Could Hurt Construction Industry

Report 00-26, December 2000

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Report Summary

  • Retainage is a common construction contracting practice whereby a certain percentage of compensation is withheld by the project owner from the general contractor and, in turn, by the general contractor from subcontractors until the project is completed satisfactorily. Retainage is also used as leverage to assure timely completion.
  • Florida's subcontractors, who felt that retainage often creates undue financial hardships, asked the 2000 Legislature to consider limiting the allowable percentage of compensation that could be retained. In response, the Legislature requested OPPAGA to evaluate retainage and other construction practices identified by subcontractors.
  • OPPAGA determined that limiting retainage may have the harmful unintended side effect of thwarting the development of new business or retarding the growth of existing businesses. In addition, owners and prime contractors may use other means to minimize risk, which may be less favorable than retainage.
  • The fiscal impact of retainage on subcontractors can be lessened through the payment of interest on their percentage of compensation that has been retained. Although the Legislature could require payment of interest by law, ideally, this would be negotiated as part of the contracting process. Consideration of such legislation should take into account the fiscal impact to the state of Florida and other units of government.
  • OPPAGA also recommends the Department of Management Services identify and disseminate best construction practices that, if implemented, would facilitate final project completion and release of retainage.

Related Reports
  1. Progress Report: Better Contracting Practices Would Aid the Construction Industry in Florida
    Report 02-50 October 2002
Copies of this report in print or alternate accessible format may be obtained by email OPPAGA@oppaga.fl.gov, telephone (850) 488-0021, or mail 111 W. Madison St., Room 312 Tallahassee, FL 32399-1475.
Copies of this report in print or alternate accessible format may be obtained by email OPPAGA@oppaga.fl.gov, telephone (850) 488-0021, or mail 111 W. Madison St., Room 312 Tallahassee, FL 32399-1475.
economic development, labor, construction, retainage, surety, surety bond, construction contracting, contracting, periodic inspections, change orders, subcontractor, general contractor