CSLB C-27 Landscaping ContractorPlanning and EstimatingMedium
A C-27 contractor is preparing a bid for a public works project that includes extensive planting and irrigation. The bid documents specify a 10% retention clause, to be held for 90 days after substantial completion. If the total project cost is estimated at $150,000, and the contractor's net profit margin is typically 15%, what is the approximate amount of cash flow that will be tied up due to retention after project completion?
- A$22,500
- B$135,000
- C$15,000
- D$127,500
Show answer & explanationAnswer & explanation
Correct answer: C. $15,000
Retention is a percentage of the total contract value held by the client to ensure satisfactory completion of the project and to cover potential warranty issues. It is calculated directly from the total project cost, not the profit margin. So, 10% of $150,000 is $15,000.
Why the other options are wrong
- A. This incorrectly tries to incorporate the profit margin into the retention calculation.
- B. This is the remaining amount after 10% retention, not the retained amount itself.
- D. This is the remaining amount after 15% profit is deducted, not the retention amount.
Retention Clause Impact
A contractual provision where a portion of the payment is withheld until project completion and/or after a warranty period, directly impacting a contractor's cash flow.
- Retention is calculated on the total contract value.
- It is held for a specified period (e.g., 30, 60, 90 days).
- It impacts cash flow, not necessarily profit.
Memory trick: Retention is 'Tied Up Treasure' from the 'Total Take' of the project.