Retainage (also called retention) is a set percentage of each progress payment, such as 5% or 10%, that the owner holds back until the work is complete. It gives the owner security that the job gets finished and the punch list gets done. For the contractor, it’s money already earned that won’t be paid until closeout, so the rules on how much can be held and when it must be released matter.
This is general information, not legal advice. Retainage rules depend on your contract, your state and whether the job is public or private. Check your state’s rules and talk to a local construction attorney before you rely on any of this.
On larger jobs, the contractor usually bills as the work goes, often monthly. With retainage, each payment comes in short by an agreed percentage. The owner keeps that money until the work reaches a point the contract defines, like substantial completion or final acceptance, and then pays it out in a release.
Retainage usually flows down the chain. The owner holds it from the general contractor, and the general contractor holds it from subcontractors.
You’ll see it most on commercial, public and larger private projects. Many smaller residential jobs skip formal retainage and use a payment schedule with a final payment due at completion, which does a similar job.
Retainage is a percentage of each progress payment, or of the work completed to date. Here’s a worked example with round, made-up numbers.
Say you have a $200,000 contract with 10% retainage and monthly billing.
The math: retainage held = work completed to date × retainage rate. Payment due = work completed this period − retainage on it.
At 5%, the same job would have $10,000 held at the end instead of $20,000. Some contracts also lower the rate partway through, for example once the job is half done, or treat stored materials differently. Read the clause, not just the number.
Now look at it from your side. If that $200,000 job earns you a $20,000 profit, your entire profit is sitting in retainage until closeout. Meanwhile you’ve paid your crew, your suppliers and, unless you hold the same retainage from them, your subs. That’s why the percentage, the release trigger and how you pass it down to subs all deserve attention before you sign.
A private contract can set its own rate unless a state law caps it. Here’s what some of the rules say. Treat these as examples, not a complete list, and check the current law for your project.
Under the Federal Acquisition Regulation, retainage isn’t automatic. FAR 32.103 says retainage “should not be used as a substitute for good contract management” and that the amount withheld “shall not exceed 10 percent of the approved estimated amount.” The payment clause, FAR 52.232-5, says the contracting officer pays in full when progress is satisfactory and may retain a maximum of 10% only when it isn’t. Once the work is substantially complete, the government keeps only what it considers adequate for its protection and releases the rest.
For subcontractors on federal jobs, the Prompt Payment Act requires the prime contractor to pay subs for satisfactory work within 7 days of being paid. It also lets the prime and the sub agree to retain a specified percentage of each progress payment.
In the rules we checked, the numbers land between 5% and 10%. Your contract can set a lower rate, or none at all. Start with our state license guides, then read your state’s statutes.
Your contract sets the trigger, and state law may set a deadline. Common triggers are:
Before you ask for release, put the closeout package together:
Start gathering these before the last week of the job. A missing document is an easy reason for an owner to hold the payment, so don’t give them one.
Retainage and lien waivers travel together. A few habits keep you from waiving money you haven’t been paid:
Our guide to lien waivers covers conditional and unconditional forms and the states that require specific wording. The free lien waiver template works in states without a required form.
Retainage is a percentage of each progress payment that the owner holds back until the work is complete, as security that the job gets finished. It’s paid to the contractor in a release once the contract’s conditions are met.
The rules we checked land between 5% and 10%. Federal contracts cap retainage at 10% and allow it only when progress isn’t satisfactory, while California and New York cap it at 5% on the contracts their laws cover. In states without a cap, a private contract can set its own rate.
When your contract’s release condition is met, such as substantial or final completion, and within any deadline your state sets. New York, for example, requires release within 30 days after final approval of the work on covered private projects.
No. A deposit is money the client pays up front, before the work starts. Retainage is money the client holds back from payments for work you’ve already done.
Some do. Several state retainage laws exclude smaller residential projects, including California’s new private-works cap and New York’s 5% rule. On many home jobs, a final payment due at completion plays a similar role.
Multiply the work completed this period by the retainage rate and hold that amount back. On a $200,000 contract with 10% retainage, $40,000 of work in the first month means $4,000 held and $36,000 paid. By completion, $20,000 is held until the contract’s release conditions are met. For percent-complete invoices built on a schedule of values, see progress billing.
Yes. Retention is another name for retainage: a set percentage of each progress payment, such as 5% or 10%, that the owner holds back until the work is complete. It usually flows down the chain, so the owner holds it from the general contractor and the general contractor holds it from subcontractors. You’ll see it most on commercial, public and larger private projects.
Meet the release trigger in your contract, such as substantial completion or final acceptance, and hand over a complete closeout package: the signed-off punch list, any final inspection or certificate of occupancy, warranties and manuals, final lien waivers from you and your subs, and a final invoice that clearly requests the retainage. Send it the day the trigger is met, since a missing document is an easy reason to hold payment.
It’s common, since retainage usually flows down the chain. Match what you hold from subs to what’s held from you: hold less and you finance the gap; hold more and you can break the rules on some jobs, like California public works. On federal jobs, the Prompt Payment Act requires primes to pay subs for satisfactory work within 7 days of being paid. This isn’t legal advice; check your state in the license guides.
ECHOPS doesn’t replace your contract or your attorney, but it keeps the money side organized. You set a payment plan by stage in the quote. Once the job is signed, invoices come from that plan (deposit, progress payments and balance), each signed change order bills itself on an invoice of its own, and you record each payment by check, ACH, cash or card last 4. Clients can also pay invoice links online by card, Apple Pay, Google Pay or ACH. If your contract holds back a final amount until completion, make it the last stage of the plan. You can send any lien waiver PDF for e-signature with up to six signers and a signing certificate. See invoicing and accounting.
Posts are general information, not legal, tax or financial advice.
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