A project has a contract value of $500,000 with 10% retainage. The contractor has submitted pay applications totaling $300,000 to date. What is the total amount of retainage being held?
Correct Answer
A) $30,000
Retainage is calculated on the amount of work completed. 10% of $300,000 in completed work equals $30,000 in retainage being held.
Why This Is the Correct Answer
Retainage is calculated as a percentage of the work completed and invoiced, not the total contract value. The contractor has submitted pay applications totaling $300,000, representing completed work. The retainage rate is 10%, so the amount being held is 10% × $300,000 = $30,000. This retainage will be held until project completion or substantial completion, depending on contract terms.
Why the Other Options Are Wrong
Option B: $25,000
$25,000 would represent a retainage rate of only 8.33% on the completed work ($25,000 ÷ $300,000). This doesn't match the stated 10% retainage rate in the contract. The calculation error likely comes from misapplying percentages or using incorrect base amounts for the retainage calculation.
Option C: $45,000
$45,000 would represent a 15% retainage rate on completed work ($45,000 ÷ $300,000), which exceeds the contract's 10% rate. This error might occur from confusing retainage rates or incorrectly calculating percentages. Florida law typically limits retainage to 10% for private projects and 5% for public projects.
Option D: $50,000
$50,000 represents 10% of the total contract value ($500,000), not the completed work amount. Retainage is only held on work actually completed and invoiced ($300,000), not on the entire contract value. This is a common conceptual error about when retainage applies.
Memory Technique
Remember 'Retainage = Rate × Completed' - retainage is only held on work actually done and invoiced, never on future or unfinished work portions of the contract.
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