Best practices for retention balances

sales tax - thea dudley

Dear Thea,

My question is about retention. If prompt payment has happened throughout a project, would it be necessary to file a lien or bond claim for the retention balance? Our company’s work is usually complete very early on so it’s not unusual for 90 days to pass without being paid retention. Also, retention isn’t usually released to the contractor for another six months or even a year after our work is completed. Maybe this is a situational bias depending on dollar amount and contractor, but I was curious what best practice is for lien/bond claims when retention is the only remaining balance. My company sells to contractors and also deals direct on some projects. We have found ourselves caught up in this situation.

Signed, Retaining our rights?

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Dear Retaining,

Which came first, the chicken or the egg? To sign, or not to sign? Retainage and anything to do with lien waivers feels like a never-ending circle or a flat-out stand-off to see who will crack first—you or the person holding your money, but who needs that elusive waiver.

Welcome to being on the horns of the waiver dilemma. You can’t get your payment until you sign off on the full and final waiver, but you don’t want to give a full and final until you are paid for the full and final amount. You are willing to provide a conditional full and final wavier, but the owner won’t accept a conditional. They are requiring an unconditional full and final wavier, and you don’t have all your money, so you don’t want to give it. This paragraph could go on forever in a never-ending scenario of “who will blink first.”

Usually the blinking party is whomever is owed the money. You are taking that leap of faith that since you have been paid promptly to this point the customer will continue to perform as in the past. Which is great…when it works. As I have preached in the past “everyone pays you—until they don’t.” That is how credit and collections work. Everything is rosy until someone misses a payment. Then it gets serious.

I equate a full and final lien waiver to death. It is final. You are not coming back from it and there is not court of appeal. Once it is done, it is done. So, when you hand out that final waiver and release swearing that you have been paid in full, make sure you actually have been paid in full.

So, what is a credit manager to do when faced with the “to-sign-or-not-to-sign” or more accurately “pay-or-not-be-paid” dilemma? If you are asked to sign a full and final lien waiver and your contract specifically calls out retainage, you need to review the document to make sure that there is language in the waiver that carves out retainage. If it does not, you are waiving all rights on this project, including your retainage.

If the form provided doesn’t address the unpaid retention, then get one that does. This is where having a friend at a lien service comes in handy. One of the benefits of using a service is that they have all the forms you need, usually provided to you for free since you are a customer.

In the absence of that option you can ask your attorney to review the waiver prior to signing and make the necessary adjustments to ensure you are protected.

Now that you have a form that protects you, the only remaining hurdle is to get your customer to accept the slightly altered form. At this crossroad you can either tell the customer that you altered the form and why, giving them the option of paying the retention early if they object, or email it over and assume they will accept it with no questions asked.

Untimely your job is to protect your company’s money by making the best decision you can for the business at the time with the information you have. You may have to take the plunge and sign that full and final waiver sans retainage carved out based on history and relationship. Sometimes to make an omelet you have to break some eggs.

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