Demo Goes First And Gets Its Retention Back Last
You work five weeks and wait twenty months for the money. Your retention rides the prime's substantial completion on a building you left before the foundation went in.
A finish trade is on site near the end, so its retention holds for a few months. Demolition finishes before the slab, which means the same 10% stays out roughly six times longer per dollar earned. You're lending the project money at the very beginning of it, and you collect when the last punch item closes.
The size of it
On $4M of annual volume at 10% retention, roughly $400,000 is parked outside the business. That's the working capital your line of credit is covering for you.
Treat retention as a financing cost on demolition, because that's how it behaves. Your scope runs weeks, but the withholding is tied to the prime's substantial completion, which can fall two years out on a building you never see finished. That puts 5 to 10% of month-one work in somebody else's account for 24 months, and no other trade has that ratio of hold time to work duration. Part of the fix is contractual: early release at scope completion, or a step-down after your final inspection. The other part is operational, and it starts with knowing the dollar amount held out there by job and by GC, reviewed on the same day every month.
Three moves, in order
Step 07: Monthly cadence
Weekly bookkeeping, cost to complete, and one CEO report, on the same days every month.
What else costs demolition contractors money
The same mechanism in other trades
What demolition owners ask
When do I get retention released on a demo subcontract?
You work five weeks and wait twenty months for the money. Your retention rides the prime's substantial completion on a building you left before the foundation went in.
What does it cost?
On $4M of annual volume at 10% retention, roughly $400,000 is parked outside the business. That's the working capital your line of credit is covering for you.
What do I do first?
Build a retention schedule by job and by GC showing amount held, date earned, and the specific event that releases it. Put it in the monthly review with the same eyes on it every time.
What are demolition contractors supposed to be making?
Demolition runs 20% gross margin, 16% overhead and 4% net profit before taxes at $1M–$5M. The all-trade average is 7%, so this trade is 3 points below it. The CFOS target is 10%.
Which part of the system fixes it?
The step is number 07, monthly cadence. Weekly bookkeeping, cost to complete, and one CEO report, on the same days every month. It comes from chapter 7 of CONTROL: The Construction Financial Operating System.
Everything on this page is something you can install yourself, andCONTROL is the order to do it in. If you would rather buy the finished result, SPM The Construction CFO does this work for demolition contractors as a service. It is a separate firm, Sulphur Prairie Management, LLC, run by the same author.
Wrote CONTROL, the 8 step system behind these figures. More about the author.