Retainage is a common contract clause in construction agreements where a portion of the payment is withheld by the client until the project is completed to their satisfaction. This practice ensures that contractors have an incentive to finish the work properly and address any deficiencies before receiving the final payment.
In addition to the fixed Monthly Reservation Rate, Customer shall pay (1) the applicable FERC ACA surcharge, and (2) the fuel usage, lost and unaccounted for gas percentage retainage factor to recover actual fuel usage, lost and unaccounted for gas based on the following calculation. Equitrans will initially retain 0.42% of Customer’s nominated receipts volumes to recover fuel, lost and unaccounted for gas. Equitrans will track the actual experienced fuel and lost and unaccounted for gas experienced to provide transportation service on the Mainline System. Equitrans will account for the under or over recovered fuel and lost and unaccounted for gas associated with this Agreement in FERC Account 186. Beginning with the Effective Date, Equitrans shall adjust the Retainage Factor from time to time, but at least on an annual basis, to more accurately reflect actual experienced fuel and lost and unaccounted for gas; however, in no event will the Retainage Factor be less than zero. Equitrans shall file with the Commission for approval to adjust the Retainage Factor to reflect changes in the actual experienced fuel and unaccounted for gas on the Mainline System. The resulting Retainage Factor shall be effective until the effective date of Equitrans’ next succeeding filing to update the Retainage Factor for this Agreement.
The Retainage Factor will be considered a negotiated Rate, subject to FERC’s negotiated rate policies, and will only apply to nominations on Equitrans’ System not involving storage injections and withdrawals or on-system non-interstate pipeline delivery points (each, a “City-Gate Point”). Any storage injection and withdrawal or City-Gate Point nominations will be subject to the posted Tariff Retainage Factors and other applicable surcharges (such as the Pipeline Safety Cost rate). In addition, Customer shall not be entitled to reservation charge credits in the event of a service outage affecting the transportation service to be provided under this Agreement.
Contracts Receivable, Including Retainage. Contracts receivable are generally based on amounts billed to the customer and currently due in accordance with our contracts. Many of the contracts under which we perform work contain retainage provisions. Retainage refers to amounts that we have billed to the customer, but are being held for payment by the customer pending satisfactory completion of the project. Retainage on active contracts is classified as a current asset regardless of the term of the contract and is generally collected within one year of the completion of a contract. At September 30, 2019 and 2018, contracts receivable included $19.8 million and $16.8 million, respectively, of retainage, which was being contractually withheld by customers until completion of the associated contracts.
Retainage Receivable. Retainage receivable represents balances billed but not paid by clients pursuant to retainage provisions in certain contracts and will be due upon completion of specific tasks or the completion of the contract.
Many of the contracts under which the Company performs work also contain retainage provisions. Retainage refers to that portion of our billings held for payment by the customer pending satisfactory completion of the project. Unless reserved, the Company assumes that all amounts retained by customers under such provisions are fully collectible. At March 31, 2024 and December 31, 2023, contract assets included $59,273 and $56,855 of retainage, respectively, and contract liabilities included $79,077 and $86,895 of retainage, respectively. Retainage on active contracts is classified as current regardless of the term of the contract and is generally collected within one year of the completion of a contract. We anticipate collecting approximately 70% of our March 31, 2024 retainage during the next twelve months, and the balance thereafter. These assets and liabilities are reported on the Condensed Consolidated Balance Sheet within “Contract assets” and “Contract liabilities” on a contract-by-contract basis at the end of each reporting period.
Contract assets decreased by $271 compared to December 31, 2023, primarily due to lower unbilled revenue, partly offset by an increase in retainage. Contract liabilities increased by $40,889 compared to December 31, 2023, due to the timing of advance billings and work progression and due to a decrease in retainage. Revenue recognized for the three months ended March 31, 2024 that was included in the contract liability balance on December 31, 2023 was $148,951. Revenue recognized for the three months ended March 31, 2023 that was included in the contract liability balance on December 31, 2022 was $97,830.
In addition, if the amount requested by Tenant does not already reflect the Minimum Retainage against the amount requested by the applicable contractor or subcontractor, then Landlord shall be permitted to retain from each disbursement an amount equal to the Minimum Retainage of the amount requested to be disbursed by Tenant. "Minimum Retainage" means (1) 10% until at least 50% of Tenant's Additional Work is substantially complete and paid for and (2) 5% thereafter.
Retainage receivable represents amounts invoiced to customers where payments have been partially withheld pending the completion of certain milestones, satisfaction of other contractual conditions or the completion of the project. Retainage agreements vary from project to project, and balances could be outstanding for several months or years depending on a number of circumstances such as contract-specific terms, project performance and other variables that may arise as the Company makes progress toward completion.
The 10 percent retainage is to be paid to the Company following the completion of the leasehold improvements, commencement of business operations, and certain building occupancy requirements. The amount of the disbursements to be made by the Landlord shall be determined by multiplying the amount of the requested disbursement by a fraction, the numerator of which is the difference between the office floors or lab floor tenant allowance and the office floors or lab floor 10 percent retainage, as applicable, and the denominator of which is the difference between the office floors or lab floor total construction costs and the Company’s upfront payment for the office floors or lab floor, as applicable.
Three customers, individually, at December 31, 2019 accounted for more than 10% of the Company’s accounts receivable and retainage. The total of accounts receivable and retainage for these customers was $5,058,066 at December 31, 2019.
In addition, pursuant to the Technology Transfer & Assignment Agreement , between Poseidon and the Company, dated December 2, 2020 (the “TTAA”), for a ten year period from the date of the TTAA (the “Retainage Period”), Poseidon will pay the Company (i) 5% of all revenue received from the sale or lease of any products based upon or incorporating the Aegis Assets, and (ii) 15% of all licensing and royalty revenues associated with the Aegis Assets. In the event that Poseidon enters into any transaction or series of transactions involving any sale, transfer, assignment or other conveyance of all or any portion of the Aegis Assets (a “Sale Transaction”) within the Retainage Period, it will pay the Company net proceeds from the Sale Transaction as follows: 40% within the first twelve months of the TTAA, 20% within the three year period following the first anniversary of the TTAA, and 10% for years thereafter through the Retainage Period.
Retainage, also known as retention, is a portion of the agreed-upon contract price deliberately withheld until the work is substantially complete to ensure that contractors or subcontractors complete their tasks satisfactorily. Retainage is commonly used in the construction industry as a financial incentive for contractors to complete the project efficiently and to address any defects or incomplete work before final payment is made.
Retainage should be used when there is a need to safeguard a project against incomplete work or potential defects. It’s particularly useful in long-term construction contracts where there’s a significant risk that portions of the work may not meet the agreed-upon standards. Retainage provides a financial motivation for contractors to meet their obligations and ensures that funds are available to correct any issues that might arise post-construction.
When drafting a retainage clause in a contract, it should clearly specify the percentage of the contract price to be withheld, the conditions under which the retainage will be released, and any documentation required to trigger the release. The language must be precise to avoid disputes, and it might read as follows:
“The Owner shall retain 10% of the contract sum from each progress payment until substantial completion of the project. Release of retained funds is contingent upon satisfactory completion of all work and submission of all warranties and close-out documents as agreed.“
Retainage is typically found in construction contracts, especially larger ones that involve complex projects and multiple phases. It is commonly included in:
General Construction Contracts - Agreements for the construction of buildings or infrastructures often include retainage clauses.
Subcontract Agreements - When a general contractor hires additional subcontractors, retainage might be applied to ensure compliance and quality control.
Public Works Contracts - Government projects frequently use retainage to ensure that public funds are safeguarded against incomplete or subpar work.
Private Sector Contracts - Large commercial or residential developments also commonly utilize retainage provisions to ensure project completion according to standards.
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Dive deeper into the world of clauses and learn more about these other clauses that are used in real contracts.
A retainer clause outlines the initial payment provided by a client to secure the services of a professional, ensuring their commitment and availability for a specified period. It typically specifies the amount, payment schedule, and terms under which the retainer can be refunded or adjusted.
A retention bonus is a financial incentive offered by an employer to encourage an employee to remain with the company for a specified period. It is typically used during times of organizational change or when a key employee is at risk of leaving, with payment contingent upon the employee fulfilling the agreed-upon retention period.
The retroactive effectiveness clause stipulates that the terms and conditions of a contract will be considered effective from a date prior to the actual execution date of the agreement. This allows any actions taken within the specified retroactive period to be covered and governed by the contract, providing legal validity to pre-contractual conduct.
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