A subcontractor submits a payment application for $85,000. After reviewing the work completed, you determine that only 80% of the claimed work is actually complete. If you typically retain 10% on all payments, what amount should be paid?
Correct Answer
A) $61,200
Earned amount = $85,000 × 80% = $68,000. After 10% retention: $68,000 × 90% = $61,200. The payment should be based on work actually completed, less the standard retention percentage.
Why This Is the Correct Answer
The calculation follows proper payment procedures: first determine earned amount ($85,000 × 80% = $68,000), then apply retention ($68,000 × 90% = $61,200). This ensures payment is based on actual work completed, not claimed work, and maintains the contractual 10% retention for project security and quality assurance.
Why the Other Options Are Wrong
Option B: $76,500
This amount ($76,500) incorrectly applies 10% retention to the full claimed amount ($85,000 × 90% = $76,500) without first adjusting for the actual work completed. It ignores the fact that only 80% of claimed work was verified as complete.
Option C: $68,000
This amount ($68,000) represents only the earned amount based on completed work ($85,000 × 80%) but fails to apply the required 10% retention. Retention must be withheld from all progress payments per standard construction contracts.
Option D: $85,000
This amount ($85,000) represents the full claimed amount without any adjustments. It ignores both the incomplete work status (only 80% complete) and the required 10% retention, violating proper payment administration procedures.
Memory Technique
Remember 'EARN then RETAIN': First calculate what was EARNED (completed work %), then apply RETENTION (subtract 10%). Never pay more than what's actually completed.
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