A contractor submits an Application for Payment showing 60% completion on a $2,000,000 project. With 10% retainage, what amount should the contractor receive if this is the first payment application?
Correct Answer
A) $1,080,000
The work completed is $2,000,000 × 60% = $1,200,000. With 10% retainage held, the payment is $1,200,000 × 90% = $1,080,000. Since this is the first payment application, no previous payments are deducted.
Why This Is the Correct Answer
Option A is correct because it properly calculates the net payment amount for the first application. The contractor has completed 60% of $2,000,000 worth of work ($1,200,000), but the owner retains 10% of that amount ($120,000) as retainage. Therefore, the contractor receives $1,200,000 - $120,000 = $1,080,000. Since this is the first payment application, there are no previous payments to subtract from this amount.
Why the Other Options Are Wrong
Option B: $1,200,000
Option B fails to account for retainage. While $1,200,000 represents the value of work completed (60% of $2,000,000), the contractor cannot receive the full amount because the owner must withhold 10% retainage ($120,000) until project completion or substantial completion.
Option C: $1,080,000 minus previous payments
Option C incorrectly suggests subtracting previous payments when the problem clearly states this is the first payment application. There are no previous payments to deduct, making this calculation method inappropriate for this scenario.
Option D: $1,200,000 minus previous payments
Option D makes two errors: it fails to deduct retainage from the work completed value, and it unnecessarily references previous payments when this is explicitly the first payment application with no prior payments to subtract.
Memory Technique
Remember 'FIRST = Fresh start, no previous payments' and 'Retainage Always Retained' - so for first payments, just calculate completed work minus retainage percentage.
Reference Hint
AIA Document A201 General Conditions, Article 9 - Payments and Completion, specifically sections on Applications for Payment and retainage provisions
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