Setting Up and Calculating Retainage for PGCA Contracts

This chapter provides an overview of retainage setup for project and government contract accounting (PGCA) contracts and discusses setting up retainage rules for project and government contract accounting (PGCA) contracts.

Understanding Retainage Setup for PGCA Contracts

Retainage is the amount of payment that the customer might withhold to ensure satisfactory contract performance. For example, you might agree to 10 percent retainage on the amount that you bill the customer. To specify how the system calculates retainage, you first set up retainage rules. You set up retainage rules using the Retainage Rules Table program (P5204).

After you set up retainage rules, you assign them to funding level contracts in the Create/Edit Project and Government Contracts program (P52G01M). The system assigns the retainage rule from the funding level contract to all billing lines for that funding level contract. For some contracts, you might have different terms for some billing lines. In this case, you can change the retainage rule at the billing line level.

Setting Up Retainage Rules for PGCA Contracts

This section provides an overview of retainage rules, discusses how to set up a retainage rule for a PGCA contract, and provides an example of setting up and calculating retainage for a PGCA contract.

Understanding Retainage Rules

Using the Retainage Rules Table program (P5204), you set up rules for how the system calculates retainage. When you set up retainage rules, you first select the billing line types on which you want to calculate retainage. You can select to calculate retainage on cost, fee, or award fee billing line types, or a combination of these three types.

You also specify whether the retainage amounts are cumulative. If you specify that retainage amounts are cumulative, the system calculates retainage amounts using the prior associated invoice amounts and retained amounts, along with the current invoice amounts.

Finally, you specify the percent at which to begin calculating retainage (percent complete), the percentage to retain, and the source amounts that the system uses to determine the percent complete. You can select the schedule of values, awarded amounts, or the funded amounts as the source amount.

If you select only one billing line type on which to calculate retainage, the system begins to calculate retainage when the cumulative invoice amounts for that billing line type exceed the percent complete of the corresponding source amounts specified in the retainage rule. The system then applies the retainage amount that it calculates to that billing line type. For example, assume you set up a retainage rule, R01, as follows:

• Billing line types to include: cost amounts.

• Percent complete source: funded amounts.

• Percent to retain: 10.

• Percent complete: 85.

Using retainage rule R01, the system begins to calculate 10 percent retainage when the cumulative invoice amounts for cost exceed 85 percent of the cost-funded amounts on the contract. The system applies the retainage that it calculates to the cost billing lines on the invoice.

If you select more than one billing line type, the system does not calculate retainage until the cumulative invoice amounts for all selected billing line types exceed the percent complete of the corresponding source amounts specified in the retainage rule. In other words, the system does not calculate retainage when you exceed the percent complete of each billing line type. For example, assume you set up a different retainage rule, R02, as follows:

• Billing line types to include: cost and fee amounts.

• Percent complete source: funded amounts.

• Percent to retain: 10.

• Percent complete: 85.

Using retainage rule R02, the system begins to calculate 10 percent retainage when the total of the cumulative invoice amounts for costs and fees exceeds 85 percent of the total of the funded cost and funded fee amounts on the contract. In this example, the system first calculates the total retainage amount and then allocates a percentage of the total to the cost and fee billing lines on the invoice. The system allocates the retainage amount based on what percentage the cost and fee amounts are of the total amount on which retainage is calculated for the current invoice.

See Example: Setting Up and Calculating Retainage for a PGCA Contract.

See Also

Defining Retainage Rules For Contracts

Understanding Retainage Calculations for JD Edwards EnterpriseOne Contract Billing

Forms Used to Set Up Retainage Rules for PGCA Contracts

Setting Up a Retainage Rule for a PGCA Contract

Access the Retainage Rules Table Revisions form.

Costs	Select to calculate the retainage amount associated with this rule for cost billing lines that are set up for the contract. Cost billing line types include labor burden, time and material, unit price, lump sum, component, milestone, progress, cost plus, and applied burden.
Fees	Select to calculate the retainage amount that is associated with this rule for all fee billing lines that are set up for the contract.
Award Fees	Select to calculate the retainage amount that is associated with this rule for all award fee billing lines that are set up for the contract.
Cumulative	Select to calculate the retainage amount using the prior associated invoice amounts and retained amounts, along with the current associated invoice amounts. If you do not select this check box, the system calculates the retainage amount using the current associated invoice amounts only.
Percent Complete Source	Select the source amount for the system to use as the percent complete in the retainage calculation. Values are: Schedule of Values:Use the schedule of values amount for the percent complete in the retainage calculation. Funded Amount:Use the funded amounts that are set up for the contract for the percent complete in the retainage calculation. Awarded Amount: Use the awarded amounts that are set up for the contract for the percent complete in the retainage calculation. The system stores values for this field in user defined code (UDC) table 52G/PC. These values are hard-coded.
Percent Retainage	Enter the retainage rate. Enter the percentage as a whole number. For example, enter 10.5 to express a retainage rate of 10.5 percent.
Percent Complete	Enter the percentage of the source amount that must be reached before the system calculates retainage.

Example: Setting Up and Calculating Retainage for a PGCA Contract

This example shows the setup for retainage for a PGCA contract and how the system calculates retainage for invoices for the contract.

Setup: Retainage Rule

This example illustrates the retainage rule that you have set up:

Based on this rule, the system used the funded amounts when determining the percent complete, and does not calculate retainage until you have invoiced for at least 85 percent of the total of the funded cost and funded award fee amounts on the funding level contract. The system retains 100 percent of the invoice amount from 85 percent to 100 percent of the invoice amount.

Setup: Contract

This example shows the funded and awarded amounts for the contract:

This example shows that retainage rule R02 is assigned to the funding level contract:

Based on this retainage rule and the amounts in the contract, the system will not calculate retainage until you have invoiced 85 percent of the total of the funded cost limit amount and the funded award fee limit amount. Therefore, the system will not calculate retainage until you have invoiced for 89,250.00 USD ((100,000 + 5,000) × .85).

Retainage Amounts: First Invoice

This example shows the invoice and retainage amounts that the system calculates when you run Invoice Generation (R52121) for the first invoice for the contract:

The total for the amounts on which the system would calculate retainage is 63,800.00 USD. The system does not include the 500.00 USD in fees because the retainage rule is set up to calculate retainage only on cost and award fee amounts.

Because 63,800.00 USD is less than 89,250.00 USD, the system does not calculate any retainage for this invoice. According to the retainage rule for this funding level contract, the system does not calculate retainage until the cumulative invoice total of cost and award fee amounts for the funding level contract is greater than 85 percent of the total of the funded cost limit and funded award fee limit amounts for the funding level contract.

Retainage Amounts: Second Invoice

This example shows the invoice and retainage amounts for the second invoice:

The total for the amounts on which the system would calculate retainage is 4,907.00 USD. Combined with the 63,800.00 USD from the prior invoice, the total invoiced amount for cost and award fees is 68,707.00 USD. This amount is still less than 89,250.00 USD, so no retainage is calculated for this invoice. Note that even though the award fee amount for this invoice is 100 percent of the award fee limit amount in the contract, the system does not calculate retainage on this amount because it uses the total of the award fee amount and the cost amount to determine whether retainage should be calculated.

Retainage Amounts: Third Invoice

This example shows the invoice and retainage amounts that the system calculates when you run Invoice Generation (R52121) for the third invoice for the contract:

For the third invoice, the total invoice amount exceeds 89,250.00 USD, so the system calculates retainage using the following steps:

1. Determines the total amount on which to calculate retainage by adding all prior and current cost and award fee amounts.

   66,207 + 2,500 + 31,320 + 2,500 = 102,527

2. Subtracts 89,250 from 102,527 to calculate the total retainage amount.

   102,527 − 89,250 = 13,277 total retainage

3. Determines what percentage the cost and award fee amounts are of the total amount on which retainage is calculated for the current invoice and allocates this percentage of the total retainage to each amount.

   • Cost amount allocation: (31,320.00 / 33,820) × 13, 277 = 12,295.55

   • Award fee amount allocation: (2,500 / 33,820) × 13,277 = 981.25

Retainage Amounts: Fourth Invoice

This example shows the invoice and retainage amounts that the system calculates when you run the R52121 program for the fourth invoice for the contract:

The system calculates retainage for 100 percent of the cost amount, so the retainage amount is 973.00 USD.

See Also

Example: Releasing Retainage for a JD Edwards EnterpriseOne PGCA Contract