Retainage Guide
& FAQs

Still waiting for that retainage payment?
Make Your Retainage Demand Now

What is Retainage?

  • Retainage Resources
  • Top Links
Icon_FAQs
Retainage FAQs

Have questions about retainage on your job, or retainage in general? This is a tricky area of law that can really impact your job, your cash, and/or your job risk. Learn everything you need to come out alive!


Icon_Map
Map of Retainage Rules Nationwide

Retainage rules are different all across the country and the world. Use our color coded map to learn about the retainage requirements that may affect your next job.


Icon-PayApp-Levelset
Demand Your Retainage Payment

Too often, contractors wait a long, long, long time to get paid the retainage withheld on a job. Sometimes, you need to make a specific demand to get retainage. Let's help you with this!

Retainage, also called “retention,” is a term and practice commonly used in the construction industry, but not really anywhere else.

Retainage is a percentage of the amount due for the labor or materials furnished to a construction project that is withheld and not paid out until the final completion of the work. Withholding a percentage of the contract price is a mechanism designed to ensure that the project is completed properly and to protect a contracting party from the inability or unwillingness of a party below them on the payment chain to remedy defective work, discharge liens, or otherwise comply with contractual requirements.

Retainage, according to some property owner and GC publications “gets the job done.” And, used fairly, that is true. By having an amount withheld after it is “earned” there is a sufficient urgency created to make sure the work is done correctly and mistakes are fixed. And, to the extent, the work cannot be correctly accomplished or remedied, the money to fix it doesn’t have to be an “extra” spend.

Just like many other mechanisms related to construction payment, however, the retainage scheme can be abused. Accordingly, rules, requirements, and practices have been built into federal law and the laws of many states, with respect to retainage to promote its fair use and to prevent its abuse. The amount of the contract price that can be withheld and the time for which the retainage may be withheld vary by state (and federally), and be dependent on project type.

Frequently Asked Questions about Retainage

Retainage can be confusing. This is especially true because the rules around retainage are very specific and vary from state-to-state and job-to-job. It's important to pay close attention to the retainage requirements and rules. Small mistakes can put your company at risk for withholding retainage improperly, or for losing out on being able to ever get your retainage! These frequently asked questions address common issues that you'll encounter when trying to stay ahead with the retainage game.

Who needs to use Retainage?

In some circumstances, withholding retainage is required by state law. For example, Texas requires the property owner to retain 10% for all private projects. In most situations, though, retainage is not required but is allowed to a certain extent.

The use of retainage is a common practice in construction, but the final determination of whether or not retainage will be withheld often comes down to the contracting parties. It’s very common for contracts to use retainage to protect against non-compliance, and retainage is built into most general pay apps.

Retainage also has a “pass-through” effect, since a contractor or subcontractor who is having money withheld from them is likely to pass on that percentage (or, in some cases, a higher percentage) to the parties with whom they subcontract.

The determination of whether or not to withhold retainage can be negotiated through contract in some cases, and can depend on the reputation of the contracting party, the relationships between the parties, their respective leverage, and the existence and amount of retainage being withheld by parties higher up the payment chain.

In what circumstances is Retainage normally used?

As mentioned above, the use of retainage is standard in the construction industry, and in fact, is occasionally mandated. The use of retainage is common practice even when not specifically mandated, however, and is built into nearly every standard contract and pay application.

When a party is able to choose whether or not to use retainage as a protective mechanism, the factors can depend on, among other things, the reputation of the contracting party, the relationships between the parties, their respective leverage, and the existence and amount of retainage being withheld by parties higher up the payment chain.

Does Retainage change according to the project location?

Yes. Retainage requirements and limitations vary from state to state, and also if the project is a federal project. The amount of the contract price that can be withheld and the time for which the retainage may be withheld is dependent on the location of the project.

For more detailed information regarding the variances between states with respect to retainage rules and requirements, please see the 50-state breakout section.

Does Retainage change according to the project type?

Yes. Retainage requirements and limitations generally vary between private, public (state/municipal), and federal public projects. The amount of the contract price that can be withheld and the time for which the retainage may be withheld is generally dependent on the project type.

For more detailed information regarding the variances between states with respect to retainage rules and requirements, please see the 50-state breakout section.

What happens if I make a mistake with Retainage?

Making a mistake with retainage is a very broad category of possible problems. From a general standpoint, making a mistake with retainage is making a financial mistake – either with respect to accounts payable or accounts receivable. Making financial mistakes on construction is never good, and can cause significant impacts not only to the party making the mistake, but also to others throughout the payment chain.

Further, making mistakes with retainage that run afoul of the statutory requirements or regulations, can result in legal liability and penalties.

Is Retainage usually paired with anything else?

Retainage is one of the many construction payment regulation tools available or required for owners, contractors, subcontractors, and suppliers. Since using retainage, and passing it down the payment chain, is general practice for construction projects, it often appears alongside other contractual provisions or statutory payment requirements. Additionally, since retainage use is so commonplace, retainage amounts are built into nearly every standard pay app.

Need More Help with Retainage? We're Here.

Free Retainage Demand Letters & Forms

It’s common for retainage to get withheld from contractors on construction jobs all across the world. But, did you realize that it’s sometimes required to send specific notices and legal documents to maintain your rights to claim retainage? Otherwise, the general contractors, owners, developers, or lenders may just sit on the retainage and wait for subcontractors to take action.

Here are some forms and legal notices you may need to stay ahead on retainage.

Notice of Intent to Make Retainage Claim Form - free from

Notice of Intent to Make Retainage Claim Form

This is not a required document in any state, however, it can still be effective to speed up payments. By sending this notice, a claimant...

Get Form Now

More Helpful Articles & Content on Retainage

Blog

CFMA Says Owners Are Shifting Financial Risks Down The Contracting Chain

ENR.com and the Construction Financial Management Association (CFMA) recently published some articles suggesting that “cash-strapped public and private owners are...

Read more

Blog

Cash Flow: Things to Keep in Mind to Stay Ahead

Achieving profitability in the construction business can sometimes be more of a challenge than the work itself. Between the tight...

Read more

Blog

Construction Contracts: Can’t GCs & Subcontractors Contract Like Friends?

Construction contracts are oftentimes lengthy and complicated. The contracts underlying a construction project form the basis of the relationships between...

Read more

Blog

How Much Cash Does a Subcontractor Need to Start a New Job?

Here's what's really going on in the scenario above: the real reason why the subcontractor in the example above needs...

Read more

Blog

Front Loading a Schedule of Values | Risks of Gambling with Cash Flow

Front loading a schedule of values is one way contractors and subs attempt to ensure steady cash flow, but there...

Read more

Blog

Residential Construction in Texas: Do Retainage Rules Apply?

One common question that many folks in the construction industry have is whether the Texas retainage rules apply to residential...

Read more

Blog

The Ultimate Guide to Retainage in the Construction Industry

The practice of retainage, aka retention, has a tremendous impact on the construction industry. Learn how retainage works on different...

Read more

Blog

Retention Bonds – An Alternative to Waiting for Retainage

A retention bond operates in the same way as retainage. It guarantees the work is done according to the contract...

Read more

Helping Thousands of Contractors Like You With Retainage