What is retainage?

Retainage, also known as retention or holdback, is a common practice in the construction industry where a percentage of a contractor's payment is withheld until the project is completed to the satisfaction of the owner or general contractor. This withheld amount is typically used as a form of security to ensure that the contractor completes the work properly and meets all contractual obligations.

The amount of retainage is usually a percentage of the total contract sum, typically ranging from 5-10%. It is usually paid out in full once the project is completed, though some contracts may specify the release of portions of the retainage at certain milestones throughout the project.

Retainage is often a source of friction between contractors and owners, as contractors may need the withheld funds to cover ongoing project costs or pay subcontractors. Delays in releasing retainage can also impact the cash flow of the contractor.

Some states have specific laws regulating retainage in construction contracts, such as limits on the amount that can be retained or requirements for prompt release of retainage once the project is completed. It is important for both parties to understand and adhere to the retainage terms outlined in the contract to avoid any disputes or delays in payment.