Utah General Contractors - Business and Law Practice Exam

What is the term used for a withholding of a percentage of contract funds until project completion?

1. Retainage

2. Escrow

3. Deposit

4. Withholding

The correct answer is: Retainage

The term used for a withholding of a percentage of contract funds until project completion is "retainage." Retainage serves as a financial incentive to ensure that the contractor completes the project in accordance with the terms of the contract. This practice is common in construction contracts, where a certain percentage of the payment is held back until the project is fully finished, taking into account the completion of all work, compliance with quality standards, and correction of any potential defects. The other terms have different meanings in the context of contracts and construction. "Escrow" refers to a financial arrangement where a third party holds funds or assets until certain conditions are met, which may not specifically relate to the completion of a project. A "deposit" typically refers to an upfront payment made to secure services or a contract but does not imply withholding for completion purposes. "Withholding" is a more general term that can refer to holding back payment for various reasons and does not specifically pertain to the construction context of retaining a percentage of funds until completion. Therefore, retainage is the correct term for this practice in construction contracts.