The Federal Acquisition Regulation Council (FAR Council) has published a final rule revising a clause applied to federal contracts for architecture and engineering (A&E) services that mandated that 10 percent of fees be withheld or retained from a firm, regardless of the quality of the firm’s performance.

In publishing the final rule, the regulations body said, “FAR Case 2008-015 amends the clause at FAR 52.232-10 “Payments Under Fixed-Price Architect-Engineer Contracts”, to revise and clarify the retainage requirements. The contracting officer can (but is not mandated to) withhold up to 10 percent of the payment due in any billing period when the contracting officer determines that such a withholding is necessary to protect the Government’s interest and ensure satisfactory completion of the contract. However, withholding the entire 10 percent is not required, and no withholding is required if the contractor’s performance has been satisfactory. The changes clarify that retainage is optional and any amounts retained should not be held over beyond the satisfactory completion of the instant contract.”

“This rule was an unbearable burden for the A&E community,” according to Patrick Olson, P.E., L.S., (AERO-METRIC, Inc., Sheboygan, WI), president of The Council on Federal Procurement of Architectural and Engineering Services (COFPAES).  “The 10 percent retainage meant A&E firms were bankers to the government, providing interest free loans that often exceed a firm’s profit margin on a contract.  We had reports from member firms of millions of dollars in retainage, held for several years, on contracts where the firm receive the highest possible performance ratings.  We are delighted this regulation has been changed.”

COFPAES Administrator John Palatiello noted, “Given that architect-engineer contracts, including surveying and mapping contracts, are awarded on a qualifications based selection process, and a firm’s experience and past performance are paramount factors in winning a contract, the retainage provision has little value to the government.  Moreover, it was a severe cash flow burden on our member firms, particularly small businesses.”

The retainage rule was identified by the Small Business Administration’s Office of Chief Counsel for Advocacy as one of the most burdensome for small business in the office’s 2008 Regulatory Review and Reform (R3) initiative (http://www.sba.gov/advo/r3/r3_services08.html).  The revision to the FAR on A&E retainage is the first regulation to have gone through the entire R3 process, from nomination, through Advocacy endorsement, and to final regulatory revision.

To view the final rule, go to: http://edocket.access.gpo.gov/2010/2010-5991.htm