Retainage on gear is a loan you didn't agree to
Gear billed as stored material gets retainage at the same rate as labor, even though you funded 100 percent of it in cash before billing a dollar.
Electrical has a far higher equipment to labor ratio on the front half of a job than the trades it shares a wall with, so retainage on material is a much larger line here than anywhere else on the GC's subcontractor list. Retainage held against labor at least trails a payroll you funded 30 to 45 days earlier. The same percentage held against gear trails a wire transfer you made a year earlier, for an asset the owner already holds title to.
The size of it
On $500k of gear at 10 percent, $50k of cash you already spent stays with the GC for 18 to 24 months. Retention receivable on a $5M electrical shop typically runs $250k to $400k, which is the entire line of credit, borrowed at 9 to 11 percent to fund money you already earned.
Retainage exists to protect the owner against defective work and incomplete performance, and a piece of gear you bought, insured, and delivered is neither. Carve material and equipment out of the retainage basis in the subcontract, because that argument is easy to make at signing and impossible to make later. The math runs one way: cash left your account at 100 percent on a wire to the supplier, and it comes back at 90 or 95 cents on a release schedule someone else controls. On a job where equipment is most of the front half billing, the distance between those two numbers is bigger than most electricians ever write down.
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 electrical contractors money
The same mechanism in other trades
What electrical owners ask
Can a general contractor hold retainage on stored materials I already paid for?
Gear billed as stored material gets retainage at the same rate as labor, even though you funded 100 percent of it in cash before billing a dollar.
What does it cost?
On $500k of gear at 10 percent, $50k of cash you already spent stays with the GC for 18 to 24 months. Retention receivable on a $5M electrical shop typically runs $250k to $400k, which is the entire line of credit, borrowed at 9 to 11 percent to fund money you already earned.
What do I do first?
Pull your three largest active subcontracts, find the retainage clause, and mark whether it reaches stored material and equipment or stops at labor and installed work.
What are electrical contractors supposed to be making?
Electrical runs 25% gross margin, 16% overhead and 9% net profit before taxes at $1M–$5M. The all-trade average is 7%, so this trade is 2 points above it. The CFOS target is 12.5%.
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 electrical 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.