I have a contractor who wants to hold 10 percent retention. But is telling me that I need to be a 100 percent at the 90 percent draw saying the last 10 percent is rention, I’m on the assumption that I should be 100 percent at the 100 percent draw and he can hold the last 10 percent for 45 days

Senior Legal Associate Levelset

In California, retainage isn’t strictly regulated for privately-owned construction projects. Retainage can be withheld, but it typically shouldn’t be withheld unless allowed by the contract or unless otherwise agreed to by the parties involved. And, as you hint at above, retainage must be released within 45 days from the date of completion.

As for how the accounting should work there – I don’t believe that’s something that’s contemplated in the state’s retainage statute. So, there may not be a statutorily-correct way to manage retainage that’s being withheld.

However, I can say that, in my experience, retainage is typically withheld as a portion of each payment made – not in a lump sum, and not separate from the rest of payment.

As in: Typically, a subcontractor will request a draw for X amount and their customer will approve the draw but only release 90% of the approved draw amount. Then, when it comes time to release payment, the sum of all the amounts withheld from previous draws will be released.

Admittedly, though – I’m no construction accounting expert and don’t have a ton of experience with billing retainage in California. So, another California Payment Expert may have more insight here.

For more background on California’s retainage laws: California Retainage Guide and FAQs.

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