Should Retainage Be Withheld on Preconstruction Services Contracts?

Under the General Contractor/Construction Manager (GC/CM) project delivery method, one of three alternative public works contracting procedures authorized in the State of Washington under chapter 39.10 RCW, a public owner selects a GC/CM early on in the design process to help with preconstruction services such as constructability reviews, cost estimating, scheduling, value engineering, etc.

But the Maximum Allowable Construction Cost (MACC) is not established until much later, when the construction documents are at least 90% complete, at which time the public owner and the GC/CM negotiate the MACC.

Prior to negotiation of the MACC, the GC/CM is under contract with the public owner to perform preconstruction services. Oftentimes, preconstruction services will involve activities that go beyond consultant-type services and include construction related work that is subject to prevailing wages and for which retainage should be withheld. Rather than try to divide which portions of the preconstruction services contract are subject to retainage being withheld and which portions aren't (an accounting nightmare!), it is much easier for public owners to simply withhold the 5% retainage on all preconstruction service contract payments.

While contractors may not be enthusiastic about such an action, public owners should be clear about their retainage process in the RFP for selection of the GC/CM so that all contractors know how the owner will administer the project. By failing to withhold retainage on preconstruction services that constitutes a public work and that is subject to prevailing wages, public owners may be subject to audit findings.

Preconstruction services are one of the portions of chapter 39.10 RCW that are not very clearly defined. In fact, these services are not even considered to be part of the Total Contract Cost for a GC/CM contract as defined in the law.