Construction Retention - Alleviating Disputes over Retention Releases

ARTICLE - In the ever-changing landscape of the construction industry, one pivotal challenge that companies face is construction retention, specifically disputes over retention releases. These conflicts, frequently arising between construction companies, their clients, or subcontractors, can critically impact timelines, budgets, and profitability. In a recent survey by Construction Executive, 62% of firms identified retention release disputes as a significant hurdle in 2023. Typically, these disputes surface due to disagreements over project milestones, quality standards, or contractual obligations, leading to delays in releasing retained funds and spurring retention claims. However, a robust solution has emerged in the form of cloud-based construction management software like FullClarity's Construction Management for NetSuite, underpinned by Oracle NetSuite, the world's #1 cloud ERP platform. This blog post will delve into the intricate challenges surrounding construction retention in 2023 and will illustrate how automated construction management software can enhance operations, promote collaboration, and defuse disputes.

Top 5 Challenges Faced by Construction Companies in 2023

1. Disagreements over Completion of Project Milestones: In the construction industry, completing project milestones is crucial for releasing retention funds. However, disputes often arise when parties have differing interpretations of milestone achievement. For instance, a client may argue that a milestone has not been met. At the same time, the construction company claims otherwise. A study by the Construction Industry Institute found that 45% of construction projects experienced disputes related to milestone achievement (Source: Construction Industry Institute, 2023). This situation leads to delays in releasing retentions and can strain relationships.
2. Quality Standards and Deficiency Disputes:  Another common challenge is disagreements over the quality standards set for construction projects. According to a report by the International Journal of Construction Management, 55% of construction projects experienced disputes related to quality standards (Source: International Journal of Construction Management, 2023). Clients or subcontractors may claim that the work performed does not meet the agreed-upon quality criteria, triggering retention claims. These disputes can escalate, resulting in extended retention periods and costly legal battles.
3. Contractual Obligations and Payment Disputes: Contractual obligations form the foundation of any construction project. A Construction Financial Management Association study revealed that 68% of construction projects faced payment disputes due to misunderstandings or ambiguities in contract terms (Source: Construction Financial Management Association, 2023). However, misunderstandings or ambiguities in contract terms can lead to payment disputes. Clients or subcontractors may withhold retention funds, arguing that the construction company has not fulfilled specific contractual obligations. This hinders cash flow, strains relationships, and increases the likelihood of disputes.
4. Administrative Challenges and Manual Processes: The traditional manual approach to managing construction projects, including retention releases, often has administrative challenges. The Construction Industry Institute found that manual methods to retention releases and associated documentation led to increased errors and miscommunication (Source: Construction Industry Institute, 2023). Recording, tracking, and managing retention releases and associated documentation can be time-consuming, error-prone, and susceptible to miscommunication. Manual processes also lack real-time visibility and collaboration, further exacerbating the potential for disputes.
5. Changes in Scope of Work and Change Order Disputes: Construction projects often change the scope due to client requests or unforeseen circumstances. A study conducted by Dodge Data & Analytics showed that 40% of construction projects experienced disputes related to change orders (Source: Dodge Data & Analytics, 2023). These changes can impact the agreed-upon terms for retention releases. Disputes may arise when clients or subcontractors argue that the changes warrant adjustments in the retention amount or release schedule. These disagreements can lead to delays in project completion and create tension between the parties involved.

Alleviating the Challenges
Construction management software, such as FullClarity's Construction Management for NetSuite, offers robust solutions to overcome the abovementioned challenges.

Here's how it addresses each of the challenges:

1. Streamlining Milestone Tracking and Communication: Construction management software enables accurate milestone tracking and documentation by providing a centralized platform where project stakeholders can monitor real-time progress. Automated notifications and reminders ensure that all parties are on the same page regarding milestone achievements, reducing the likelihood of disputes.
2. Enhancing Quality Control and Deficiency Management: Automated construction management software allows companies to define and enforce standardized quality standards across projects by incorporating quality control features. Real-time collaboration tools facilitate proactive communication and quick resolution of deficiencies, minimizing the risk of retention claims arising from quality disputes.
3. Ensuring Contract Compliance and Payment Management: With comprehensive contract management capabilities, construction management software helps construction companies enforce contractual obligations and stay compliant with payment terms. Automated reminders for payment milestones and retention releases ensure timely execution, reducing the chances of payment disputes.
4. Automating Administrative Tasks and Improving Documentation: Construction management software streamlines administrative processes by automating tasks like retention tracking, document management, and reporting. This automation minimizes errors, improves accuracy, and reduces time spent on paperwork. Additionally, cloud-based storage ensures easy access to the relevant documentation, reducing disputes caused by missing or misplaced files.
5. Streamlining Change Order Management: Automated construction management software offers change order management functionality. It allows companies to document and track changes to the scope of work, including associated retention adjustments, within the system. This ensures transparency and clear communication between all stakeholders, reducing the likelihood of disputes over retention releases due to changes in project scope.

A Final Thought
Disputes over retention releases in the construction industry can significantly impact project timelines, budgets, and relationships. According to a study by Software Advice, 83% of construction professionals believe that construction management software can help reduce disputes and improve project outcomes (Source: Software Advice, 2023). By streamlining milestone tracking and communication, enhancing quality control and deficiency management, ensuring contract compliance and payment management, automating administrative tasks, and streamlining change order management, this software provides effective solutions to mitigate disputes over retention releases.

With the advent of advanced construction management software like FullClarity's Construction Management for NetSuite, construction companies now have a powerful tool to mitigate these challenges. As the construction industry evolves, investing in such software solutions becomes imperative for companies seeking a competitive edge in 2023 and beyond.

If your organization is looking for a better way to do Construction Management in NetSuite, contact us to arrange a consultation.

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