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Say NO to Construction Retention

Say NO to Construction Retention
Pat Dickson - Tue Apr 10, 2012 @ 03:02PM
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The other day Jim called. Jim is a bricklayer who'd been going through a rough time since the residential construction market collapsed. However, things were looking up because we'd worked on getting him into some commercial work. He was really excited because he'd just negotiated terms with a local commercial contractor for doing custom masonry for a local shopping center. If things worked out, Jim would clear about $45,000 on a $300,000 deal. The work would all be self-performed and take about 4 months to complete. However, Jim wasn't excited about one thing He'd just been given a 137 page contract and was asked to sign it. He'd read every word and had looked up everything on the Internet. Having 15% construction retention withheld did not make him happy.

"Pat, if I read this right, the Contractor doesn't have to pay me the last $45,000 until the Owner signs off on everything and makes the final payment to the Contractor. Only then do I get paid. That's not right! I'm not financing this project! Do I look like a bank? It could take a year to get any of my profit on this deal. All the work the other subs are doing will take that long to finish. A whole year! How am I supposed to pay my mortgage?"

"That's how the construction business goes, but you can tell the Contractor you won't agree to retention, or that you must be paid the final payment within a week of completing your work. Just change the contract terms accordingly."

"I called them. They said sorry, this is how the business works. I should know that."

"You don't have to do it their way. So what if that's how they do it? I remember you telling me you came up with all the terms in email. That's how you bid it. You agreed to do the work for $300,000 and gave them a copy of your payment terms and conditions. Those terms say you must be paid in full within a week of completion, right? I remember helping you put that little contract together. It says nothing about construction retention."

"Yes but they say I have to sign their contract anyway."

"Maybe. But let's start by figuring out if we can say no."

"Ok."

"How big is the whole job - the entire project?"

"Several million."

"Do you know how much the second highest bidder bid on the masonry work?"

"$420,000."

"What if you called them and told them you couldn't do the work for less than $345,000, unless they guaranteed final payment within one week of your completing your work? Your bid is so much lower than the number 2 bidder you have some leverage."

"I can't do that. That's changing the terms of our deal."

"I disagree. They are trying to change the terms of the deal, not you. You offered to do the work at $300,000 which included your receiving final payment within 1 week of the completion of your work. You included your terms and conditions in the email. Right? These terms say exactly that. Final payment within a week, not a year later sometime, when at the Owner's whim he decides he is satisfied with the entire project."

"Yes. I can see your point. I never agreed to such tough terms, not for $300,000"

"And you'd never seen this 137 monster with the retention before?"

"No."

"When you call the Contractor, if they give you any trouble, tell them you still don't have a contract. You never reached a real agreement. They never accepted your offer, as submitted as your bid, along with your Ts&Cs. Instead, by sending you a monster 137 page contract, they rejected your offer and made a counteroffer."

"That sounds like a good argument, but maybe only for court or lawyers. If I say all that they might get mad and I'll lose the deal."

"You might. It is your call."

"But, it will cost them at least $120,000 to give me the boot and take the second highest bidder."

"Like I said, it is your call. Maybe if you are polite and explain you priced this job without expecting to have all your profit withheld for more than a year, you might win some hearts. Emphasize you are a one man shop and do great work. You just aren't in the business of financing big construction jobs. You are licensed and bonded and you've never let a customer down."

"Yeah. I think I'll give it a try. I'll call them."

"I'll call if you want."

"No way! You'll charge me an arm and a leg!"

In less than an hour Jim called back.

"Good news, they bought it!"

"How did you do it?"

"The project manager was new, and when he was soliciting bids, he forgot to put their boilerplate contract in with all the other documents. So, they said this time I'm off the hook. They'll just sign my Ts&Cs. But, they said from now on they'll always be sure to include that crazy 137 pager. So, this time they said I was right. I bid the work without the retention being a part of the job. But not next time!"

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