A project has a contract value of $850,000 with monthly progress payments. If the work completed this month is valued at $75,000 with 10% retainage, and there's a $5,000 back charge for defective work, what is the net payment due?
Correct Answer
D) $62,500
Work completed: $75,000, less 10% retainage ($7,500) = $67,500, less $5,000 back charge = $62,500 net payment due.
Why This Is the Correct Answer
The calculation follows standard progress payment procedures: Start with completed work value of $75,000, subtract 10% retainage ($7,500) to get $67,500, then subtract the $5,000 back charge for defective work. This yields $62,500 net payment due. Retainage and back charges are both standard deductions from progress payments in construction contracts.
Why the Other Options Are Wrong
Option A: $70,000
This amount ($70,000) incorrectly calculates the retainage as $5,000 instead of the correct 10% ($7,500). The error stems from confusing the back charge amount with the retainage calculation, leading to insufficient deduction from the gross payment amount.
Option B: $65,000
This amount ($67,500) represents the payment after retainage deduction but fails to account for the $5,000 back charge for defective work. The calculation stops at $75,000 - $7,500 = $67,500 without subtracting the additional penalty, resulting in an overpayment to the contractor.
Option C: $67,500
This amount ($65,000) applies the correct retainage deduction ($7,500) but only deducts $2,500 of the $5,000 back charge. This partial application of the back charge results in an incomplete calculation that overstates the net payment due to the contractor.
Memory Technique
Remember 'WRB': Work completed minus Retainage minus Back charges equals net payment. Think 'Workers Really Benefit' when payments are calculated correctly.
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