Project Billing and RetainageLesson 11

Tracking Retainage with a Cap

Back to V300: Project Accounting for Construction

Lesson 11: Tracking Retainage with a Cap

Part 2: Project Billing and Retainage

This lesson describes the process of billing a project with contract cap retainage.

Retainage with a Cap: General Information

In Acumatica ERP Construction Edition, you can configure a project with contract cap retainage to be able to define the maximum retainage amount that can be held for the project. For a project with contract cap retainage, you perform progress billing, and the particular invoice amount is retained until the specified retainage limit is reached.

Learning Objectives

In this lesson, you will learn how to do the following:

  • Learn how to configure a project with a contract cap
  • Learn how the contract cap retainage is calculated
  • Create pro forma invoices with retainage for the project until the retainage cap is reached
  • Release the retainage for the project for multiple project budget lines

Applicable Scenarios

You configure a project with contract cap retainage when it is necessary to specify the maximum retainage amount that can be held for the project. When you bill this project, the retainage is withheld for the invoice lines until the specified contract cap is reached.

The Application of Retainage with a Contract Cap

Construction projects with contractual agreements are typically billed based on the progress of the work; that is, the customer generally has to make partial payments to the general contractor as the work progresses. Requests for payments are prepared periodically—for example, monthly—and include the cost of the work accomplished since the previous payment to the general contractor was made. In accordance with the terms of the project, the customer usually retains a prescribed percentage of each progress payment being made; a typical scenario is billing a project with contract cap retainage, which means that the retainage is being withheld until it reaches the agreed-on amount (which is typically specified as a percentage of the total project amount). Aer that, if the work is progressing and the customer is satisfied, the subsequent progress payments are made in full. The accumulated retainage is held by the customer until the work receives final certification by the architect. Once the customer accepts the project, the final payment, which includes the accumulated retainage, is made to the general contractor. When you bill a project for which contract cap retainage is configured, the selected contract cap retainage is applied to the project when you bill it until the cap is reached. The system calculates retainage by using the following formula: Retainage Amount = Amount to Invoice * Retainage % Aer the cap has been reached and the total retained amount held for the project, which is specified on the Summary tab (Retainage section) of the Projects (PM301000) form, is at its maximum, no new retainage amount is calculated for further invoices created during project billing. The Total Retained Amount held for the project is reallocated between the invoice lines, based on their weight and retainage capacity. That is, the invoices have the same total allocated retained amount but with different portions of it in the invoice lines (which are allocated to the lines based on the calculated line weight). On the Release AR Retainage (AR510000) form, you can gradually release the retainage held to clear the unreleased retainage balance held on the AR invoice lines; this in turn causes decreases of the Retained Amount in the revenue budget lines on the Revenue Budget tab of the Projects form. The total retainage amount held for the project stays the same across all the invoices prepared for the project, unless a change order that affects the project revenue budget has been released. If you configure the project to include change orders in the retainage calculation—that is, if the Include CO check box is selected on the Summary tab of the Projects form—the contract total, the completed percentage, and the cap amount are recalculated in accordance with the changes in the revenue budget that have been introduced by the released change orders.

Calculation of Retainage Amounts

In a pro forma invoice prepared on the Pro Forma Invoices (PM307000) form for a project with contract cap retainage, the system calculates the Allocated Retained Amount (that is, the amount of retainage that is considered to be held for the related revenue budget line in this pro forma invoice), by using the following formula: Allocated Retained Amount = (Total Retained Amount - Total Released Retainage)

  • Line Weight In this formula:
  • Total Retained Amount is the sum of the retained amounts for all revenue budget lines of the project.
  • Total Released Retainage is the sum of the amounts of the released AR retainage documents that are related to the project. Once the contract cap is reached, in the subsequent invoices, the system reallocates the accumulated retainage amount of each billing line based on a line weight calculation. For each pro forma invoice line, Line Weight is calculated as follows: Line Weight = (Amount to Invoice + Previously Invoiced Amount) / Total Completed In this formula, Total Completed is the sum of the Amount to Invoice and Previously Invoiced Amount amounts for all pro forma invoice lines.

Retainage in AIA Reports

The calculated Allocated Retained Amount of a pro forma invoice line is shown in the Retainage Held column in the continuation sheet of an American Institute of Architects (AIA) report: in Acumatica ERP Construction Edition, AIA Report (PM644000) or AIA Report with Quantity (PM644500) report. In the AIA report generated for a project with contract cap retainage, the retainage held amount is equal to the allocated retained amount from the pro forma invoice that was calculated by using the formula above.

          In projects with retainage without contract cap, a pro forma invoice prepared for a project does not
          include the allocated retained amount. In the AIA report prepared for such a project, the retainage
          held amount is equal to the Retainage Amount of the pro forma invoice on the Pro Forma Invoices
          (PM307000) form.

The total retainage amount on the cover sheet of the AIA report is calculated as the sum of the held retainage amounts on the AIA continuation sheet. Once the retainage is released, the released retainage amount is included in the current payment due amount.

Retainage with a Cap: Process Activity

This activity will walk you through the process of performing progress billing for a project with contract cap retainage.

Story

Suppose that the ToadGreen Building Group company is a general contractor that is building a hotel for The Equity Group Investors. The project manager has created a fixed-price project; for this project, the customer will be billed once a month based on the progress of the performed work. Also, in the project, the project manager has defined the original project budget, which was also agreed upon with the customer. According to the contract, the customer retains 5% from each invoice, which guarantees to the customer that the ToadGreen company will meet its obligations in building the hotel. Because the ToadGreen company, as a general contractor, needs to have enough resources for performing daily operations, the contract also includes a 50% retainage cap, which specifies the maximum retainage amount that can be held for the project. Acting as the project manager, you need to make sure that the pro forma invoices prepared for the customer include the correct retainage amounts, and that the retainage is no longer held aer the cap has been reached.

Configuration Overview

In the U100 dataset, the following tasks have been performed to support this activity:

  • On the Enable/Disable Features (CS100000) form, the Construction, Payment Application by Line, and Retainage Support features have been enabled.
  • On the Customers (AR303000) form, the EQUGRP customer has been created; the Pay by Line and Apply Retainage check boxes are selected on the General tab for this customer. On the GL Accounts tab, 18000 is specified in the Retainage Receivable Account box.
  • On the Billing Rules (PM207000) form, the PROGRRET billing rule has been created.
  • On the Projects (PM301000) form, the HOTELCP project has been created with multiple project tasks and their budgets. For each task, the PROGRRET billing rule is specified. On the Summary tab of the form, the contract cap retainage settings have been configured for the project. For the project, three billing iterations have been performed. The pro forma invoices and the corresponding AR invoices have been prepared and released on the Pro Forma Invoices (PM307000) and Invoices and Memos (AR301000) forms, respectively; in each invoice, the retainage amount has been calculated.

Process Overview

You will review the billing details of a previously prepared pro forma invoice by using the Projects (PM301000) and Pro Forma Invoices (PM307000) forms. You will then perform billing while the cap has not been reached by using the same forms, and review the retainage that the system will calculate for the invoice. Aer that, you will perform billing when the cap has been reached so that retainage is not calculated for this invoices.

Step 1: Reviewing the Retainage Details of the Project Review the details of the project as follows:

  1. Open the Projects (PM301000) form.
  2. In the Project ID box, select HOTELCP. In the Retainage section of the Summary tab, review the retainage details for the project. The Total Retained Amount is 958,392.99, while the calculated cap amount is 992,886.42. The contract completion percentage shown in the Completed (%) box is 48.26, which means that the 50% cap has not been reached and that additional retainage could still be withheld from the next invoice.
  3. On the Invoices tab, click the Pro Forma Reference Nbr. link for the pro forma invoice with the 0003 in the Application Nbr. box. On the Pro Forma Invoices (PM307000) form, which opens with the selected pro forma invoice, review the retainage amounts on the Progress Billing tab. In each line, the retainage amount is calculated as the retainage percentage applied to the amount to invoice; for example, for the line with the 01-000 cost code, Retainage Amount is 103,859.15 (2,077,183.00 * 0.05). The Retainage Total in the Summary area of the invoice (see the following screenshot) is the sum of the Retainage Amount column values for this pro forma invoice. The total project retainage (held for all three invoices prepared for the project by this moment) is shown in the Allocated Retained Total box in the Summary area; this amount is the sum of the Allocated Retained Amount column values.
       Figure: The pro forma invoice with the retainage calculated

Step 2: Billing a Project Based on Progress Bill a project by doing the following:

  1. Return to the HOTELCP project on the Projects (PM301000) form, and on the Revenue Budget tab, in the Completed (%) box, change the amounts as follows:
  • In the line with the 05-000 cost code, change Completed (%) to 66. The system calculates the Pending Invoice Amount in the line to be 456,325.44.
  • In the line with the 06-000 cost code, change Completed (%) to 75. The system calculates the Pending Invoice Amount in the line to be 232,750.00.
  • In the line with the 07-000 cost code, change Completed (%) to 80. The system calculates the Pending Invoice Amount in the line to be 395,742.00.
  • In the line with the 08-000 cost code, change Completed (%) to 75. The system calculates the Pending Invoice Amount in the line to be 409,690.00.
  1. In the Summary area, make sure the Pending Invoice Amount Total equals 1,494,507.44, and on the form toolbar, click Save.
  2. On the form toolbar, click Run Billing to generate a new pro forma invoice for the project. The system opens the prepared document on the Pro Forma Invoices (PM307000) form, as shown in the screenshot below. Notice that the Allocated Retained Total equals 992,886.42: This is the maximum retainage amount that can be held for the project. To avoid exceeding the retainage cap, for this invoice, the system has calculated the rest of the retainage that can be held and has reallocated it proportionally between the invoice lines.
       Figure: The pro forma invoice with retainage
  3. On the form toolbar, click Remove Hold, and then click Release.
  4. On the Financial tab, click the AR Ref. Nbr. link to open the created AR invoice on the Invoices and Memos (AR301000) form. On the Details tab, notice that the calculated retainage percent is the same for all lines with non-zero retainage amount and is less than 5% percent defined in the project.
  5. On the form toolbar, click Remove Hold, and then click Release.
    The cap has been reached, so no more retainage will be calculated for the project. For the remaining invoices prepared for the project, the system will not calculate retainage amounts. Part 2: Project Billing and Retainage | 79