Business FinancesQuestion 307 of 1605
Why does retention (retainage) create a cash-flow challenge for a contractor?
a.It increases the contractor's overhead rate
b.It must be paid to the IRS each quarter
c.It is added on top of the contract price as a penalty
d.The contractor pays all job costs but cannot collect the withheld amount until the project is accepted
Explanation
Retention is part of money the contractor has earned but cannot collect until project completion and acceptance. The contractor still must pay labor, materials, and subcontractors in the meantime, creating a cash gap.
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- A contractor borrows $30,000 at 6% simple annual interest and repays it in full after 3 years. What is the total amount repaid?
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- On a $150,000 contract, the owner withholds 10% retention from each progress payment. After all work is billed, how much money is being held as retention?
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Reviewed by Abraham Chen — Licensed California General Contractor (CSLB License #1101856 — verify)