Updated November 2026
Retainage is the part of each progress payment an owner holds back until the job is finished. On most projects it runs 5% to 10% of every invoice. That money is already earned, so how you bill it, track it and get it released has a direct effect on your cash flow.
This guide covers what retainage is, how it’s calculated on a pay application, what states allow, and the steps to get it released on time.
What is retainage in construction?
Retainage (also called retention) is a percentage of the contract price that the owner withholds from each payment to the contractor. The owner pays it out once the work is substantially or fully complete, as the contract defines.
The same rule usually flows down the chain. The owner withholds from the general contractor, and the general contractor withholds the same or a lower percentage from each subcontractor.
Two points are often confused:
- Retainage is not a fee. It’s contract money you’ve earned but haven’t been paid yet. The owner isn’t charging you anything; they’re delaying part of the payment.
- Retainage and “holdback” aren’t always the same thing. In the US, people use the words loosely. In Canada, the lien holdback is a separate statutory requirement under provincial lien laws, with its own percentage and release rules.
Why owners hold retainage
Retainage gives the owner leverage to make sure the job gets finished. If a contractor walks off the job, leaves defects or doesn’t pay subs, the owner has money on hand to fix the problem. It also gives the contractor a reason to close out punch list items quickly instead of moving crews to the next job.
What is substantial completion?
Substantial completion is the point where the project can be used for its intended purpose, even if minor items remain. Many contracts tie retainage release, or a reduction in the rate, to this milestone.
Define it clearly in the contract. Vague language such as “when the work is complete” is one of the most common reasons retainage gets held longer than it should. A good definition names the trigger (certificate of occupancy, architect’s certificate of substantial completion, or owner sign-off) and the documents needed to prove it.
How retainage works
Retainage is withheld from every progress payment, not taken as a lump sum at the start or end. Each time you bill, the owner pays the value of work completed minus the retainage percentage. The withheld amounts build up over the job and are paid in one release (or a few partial releases) at the end.
The basic calculation:
On a $500,000 contract with 10% retainage, the owner will be holding $50,000 by the time the last progress bill is paid. That $50,000 is often more than the contractor’s entire profit on the job, which is why release timing matters so much.
Typical retainage rates
Most contracts set retainage at 5% to 10%. Where it lands depends on three things:
- State law. Many states cap retainage, especially on public projects. Some require the rate to drop once the job is 50% complete (see the state table below).
- Project type. Public and large commercial jobs almost always carry retainage. Small residential remodels often have none.
- The contract. On private work in states without a cap, the rate, any reduction at 50% completion, and the release trigger are whatever the parties agree to.
Federal construction contracts follow the Federal Acquisition Regulation (FAR 32.103). Retainage isn’t banned there, but it’s limited: the contracting officer may withhold retainage only when the contractor isn’t making satisfactory progress, it can’t exceed 10% of the approved progress payment, and it must be paid promptly once the contract is complete.
Example: retainage on a $500,000 job, step by step
Here’s how retainage runs through a schedule of values and AIA-style progress billing on a custom home with a $500,000 contract and 10% retainage.
1. The schedule of values. Before the first bill, the contractor breaks the contract into line items. Each pay application reports progress against these lines on the G703 continuation sheet.
2. Pay application #2. By the second bill, $250,000 of work is complete. The G703 shows retainage line by line:
| Item | Scheduled value | From previous apps | This period | Completed to date | Balance to finish | Retainage (10%) |
|---|---|---|---|---|---|---|
| General conditions | $40,000 | $8,000 | $8,000 | $16,000 | $24,000 | $1,600 |
| Sitework | $60,000 | $60,000 | $0 | $60,000 | $0 | $6,000 |
| Foundation | $80,000 | $32,000 | $48,000 | $80,000 | $0 | $8,000 |
| Framing | $140,000 | $0 | $84,000 | $84,000 | $56,000 | $8,400 |
| MEP | $120,000 | $0 | $10,000 | $10,000 | $110,000 | $1,000 |
| Finishes | $60,000 | $0 | $0 | $0 | $60,000 | $0 |
| Total | $500,000 | $100,000 | $150,000 | $250,000 | $250,000 | $25,000 |
3. The G702 summary. The totals carry to the G702 application and certificate for payment:
| G702 line | Amount |
|---|---|
| 4. Total completed and stored to date | $250,000 |
| 5. Retainage (10% of completed work) | $25,000 |
| 6. Total earned less retainage | $225,000 |
| 7. Less previous certificates for payment | $90,000 |
| 8. Current payment due | $135,000 |
4. Across the whole job. Retainage keeps building until the final release:
| Pay app | Billed this period | Completed to date | Retainage held to date | Payment due |
|---|---|---|---|---|
| #1 | $100,000 | $100,000 | $10,000 | $90,000 |
| #2 | $150,000 | $250,000 | $25,000 | $135,000 |
| #3 | $175,000 | $425,000 | $42,500 | $157,500 |
| #4 (final progress bill) | $75,000 | $500,000 | $50,000 | $67,500 |
| Retainage release | $0 | $500,000 | $0 | $50,000 |
The contractor collects $450,000 during construction and the last $50,000 only after the release conditions are met. If the contract had cut retainage to 5% at 50% completion, the amount held at the end would drop to $37,500 (10% on the first $250,000, 5% on the rest).
How retainage affects subcontractors
Subs feel retainage more than anyone. A sitework or foundation sub may finish in month two of a twelve-month job, but their retainage is often tied to the general contractor’s release at the end. That means waiting most of a year for money they earned early, while still paying their own crews and suppliers.
A few ways general contractors keep this fair:
- Hold the same or a lower rate from subs than the owner holds from you, never a higher one.
- Ask the owner for line-item release, so early trades get their retainage once their scope is accepted.
- Pass retainage through to subs promptly when you receive it. Many states set a deadline for this.
Retainage laws by state
Most states regulate retainage on public projects, and a growing number also cap it on private jobs. The table below covers common rules in larger construction markets. Retainage laws change often (California, New York and Illinois all changed theirs in the last two years), so check the current statute and your contract before you sign.
Last checked: November 2026. This is general information, not legal advice.
| State | Public projects | Private projects | Release timing | Statute |
|---|---|---|---|---|
| Arizona | 10%; half released at 50% completion if progress is satisfactory | “Reasonable amount” set by contract | Public: 60 days after completion. Private: 7 days after release billing is approved | A.R.S. 34-221; 32-1182 |
| California | 5% of each payment and of the contract price (exceptions for some complex projects) | 5% cap for contracts entered on or after Jan 1, 2026 (some residential exceptions) | Public: 60 days after completion. Private: 45 days after completion | Pub. Cont. Code 7201, 7107; Civ. Code 8811, 8812 |
| Florida | 5% | No statutory cap; set by contract | Local government: within 20 business days after punch list completion (an amount for open items can be held) | Fla. Stat. 255.078; 218.735 |
| Georgia | 5% (contracts from July 1, 2022) | Reasonable amount, no higher than the owner–contractor rate | Public: 30 days after substantial completion | Ga. Code 13-10-80 |
| Illinois | 10% until 50% complete, then 5% (state agencies phase in by June 1, 2027) | 10% until 50% complete, then 5% | Set by contract | 815 ILCS 603/20; 30 ILCS 550/1 |
| New Mexico | Generally prohibited (limited exception for road projects) | Generally prohibited | Undisputed public payments due within 21 days | N.M. Stat. 57-28-5 |
| New York | Generally 5% | 5% on contracts of $150,000 or more | Private: 30 days after final approval | Gen. Bus. Law 756-c; State Fin. Law 139-f |
| North Carolina | 5%; no further retainage after 50% completion | Set by contract | Public: 60 days after substantial completion or beneficial occupancy | N.C.G.S. 143-134.1 |
| Texas | 10% on contracts under $5M; 5% on $5M or more | No cap; owners must hold a 10% lien reserve for 30 days after completion | Set by contract | Gov’t Code 2252.032; Prop. Code 53.101 |
| Washington | 5% (option to hold in lieu of a bond on small jobs) | Set by contract | Public: 60 days after completion of all contract work | RCW 60.28.011 |
| Federal | Only when progress is unsatisfactory; up to 10% | n/a | Promptly after all contract requirements are met | FAR 32.103 |
Sources: FAR 32.103; PayAppPro retainage laws by state; Built: what is retainage; SubTrade retainage by state; Levelset New Mexico retainage FAQ.
Outside the US
Retention is common in Canada, the UK and Australia, but the rules differ from US retainage. In Canada, provincial lien laws require a separate statutory holdback (often 10%) on top of anything in the contract. In Australia and the UK, retention is usually split between practical completion and the end of a defects liability period set in the contract. If you build outside the US, check the local law rather than applying US rates.
Pros and cons of retainage
| For the owner | For the contractor and subs |
|---|---|
| Money on hand to fix defects or finish the job if the contractor defaults | Earned money tied up for months, often more than the job’s profit |
| Leverage to get the punch list closed quickly | Slow release can force borrowing to cover payroll and suppliers |
| Some protection if subs or suppliers go unpaid | Early trades wait longest, since release is tied to the end of the job |
| Disputes over “substantial completion” can delay payment further |
How to get retainage released: a checklist
Most retainage delays come from missing paperwork, not real disputes. Work through this list as the job nears completion:
- Read the release terms early. Note the trigger (substantial or final completion), any reduction at 50%, and the documents the owner needs.
- Close out the punch list and get it signed off. Walk the job with the owner or architect and get written acceptance. Our punch list guide and punch list template cover how to run it.
- Collect final lien waivers. Gather unconditional final lien waivers from every sub and supplier, plus your own conditional final waiver for the retainage amount.
- Hand over closeout documents. As-built drawings, warranties, O&M manuals, inspection sign-offs and the certificate of occupancy, if required.
- Submit a written retainage request. Send a separate pay application or invoice for the retainage amount, referencing the contract clause and the date of completion.
- Track the statutory deadline. If your state sets a release deadline, put it on the calendar from the completion date.
What to do if retainage is held too long
If the deadline passes and the owner still won’t pay, escalate in steps:
- Send a formal demand letter. Cite the contract clause and, if it applies, your state’s release statute and prompt payment interest.
- Protect your lien or bond rights. On private jobs, a mechanics lien is the main remedy. Lien deadlines are strict and often run from your last day of work, not the retainage due date, and many states require a preliminary notice at the start of the job. On public jobs, you can’t lien the property, so the remedy is a payment bond claim against the contractor’s surety.
- Use the dispute process in your contract. Mediation or arbitration clauses usually apply before a lawsuit.
- Talk to a construction attorney before your lien or bond claim deadline, not after.
How to manage retainage across projects
Retainage is easy to lose track of when you’re running several jobs at once. A few habits keep it under control:
- Track retainage receivable and payable separately. Keep what owners owe you apart from what you owe subs, and record both on the balance sheet, not as revenue you’ve lost.
- Show it in your WIP report. Retainage affects over- and under-billing and the cash you can actually use. See our guide to WIP reports.
- Plan for it in your cash flow. Treat the retainage on each job as money arriving after closeout, not with the last progress bill. On construction loans, check how the lender’s draw schedule handles it.
- Negotiate it before you sign. Ask for a lower rate, a step-down at 50% completion, line-item release for early trades, or a retainage bond instead of cash withholding.
Construction software makes this simpler. In Buildern, you set the retainage percentage once per project, and it’s applied to every client invoice automatically, whatever the invoicing type. You see retainage held and released per job, before and after tax, without rebuilding it in a spreadsheet.
Key takeaways
- Retainage is earned contract money held back, usually 5% to 10% of each payment, until the job is done.
- It’s calculated on every pay application, line by line on the G703 and in total on the G702.
- State law often caps the rate and sets release deadlines, so check the statute before you sign.
- Most delays come from missing closeout paperwork. Start the release checklist before substantial completion.
- Track retainage per job so you know exactly how much cash is still owed to you, and what you owe your subs.
Track retainage on every job with Buildern. Set the rate once per project and let invoices, pay apps and reports handle the rest. Try Buildern for free, no credit card required.
Frequently Asked Questions
What is retainage?
Retainage is a percentage of each progress payment that the owner withholds until the project is complete. It’s usually 5% to 10% and is paid out once the release conditions in the contract are met.
What is a typical retainage percentage?
Most contracts use 5% to 10%. Many states cap public projects at 5%, and some require the rate to drop after the job is 50% complete.
Is retainage the same as retention?
Yes, in US construction the two words mean the same thing. “Holdback” is also used informally, but in Canada a lien holdback is a separate legal requirement.
When is retainage paid?
When the contract says it is, usually at substantial or final completion. Many states set a deadline, often 30 to 60 days after completion, for public and sometimes private jobs.
Is retainage income or a receivable?
It’s a receivable. You’ve earned it, so it’s recorded as retainage receivable on the balance sheet until it’s collected. Retainage you hold from subs is recorded as retainage payable.
Can subcontractors be charged retainage?
Yes. General contractors usually withhold retainage from subs at the same or a lower rate than the owner withholds from them. Many states require the GC to pass retainage through within a set number of days after receiving it.
Can you avoid retainage?
Sometimes. On private jobs in states without a mandatory rate, you can negotiate no retainage, a lower rate, a step-down at 50% completion, or a retainage bond in place of withheld cash.
