What is the retainage requirement for contracts over $500,000?

The retainage requirement for contracts over $500,000 is established to ensure that contractors perform according to the terms of their agreements and complete the project satisfactorily. The correct answer indicates that 5% of the total contract payments is withheld as retainage. This percentage is standard in many contracts to protect the interests of the municipality and ensure that funds are reserved for potential corrective actions or to complete the work if the contractor fails to meet their obligations.

Retainage serves several purposes: it provides an incentive for the contractor to finish the job on time and meets quality standards, ensures that the municipality has a financial buffer to address performance issues, and helps to promote compliance with relevant contractual obligations and standards. Such policies aim to balance the financial interests of the contractor with the regulatory and oversight responsibilities of the agency managing the contract.

Understanding this principle is important for anyone involved in municipal finance and contract management, as it reflects both fiscal responsibility and risk management in public projects.