California's Retainage Rules
- Private Jobs
- Public Jobs
No Retainage Limits
California does not restrict the retainage that can be withheld from a contractor on commercial or residential jobs. It is customary to withhold between 0%-10% as retainage.
45 Day Pay Period
Retainage withheld from a direct contractor must be released by 45 days from the “date of completion.” Amounts withheld by the direct contractor from a subcontractor or supplier must be released within 10 days of the contractor's receipt of any retention payment.
There is a Process to Recover
Yes, notice must be given in writing, and timelines apply to the release of retention on approved work.
Not Held In Escrow
In California, contractors and owners do not need to hold retainage funds in a separate escrow account.
Prior to completion and acceptance of the project, retainage may not exceed 5%. After 95% of the work is complete, withheld funds may be reduced to 125% of the estimated value of the unfinished work.
60 Day Pay Period
Within 60 days of completion of the work of improvement, the retention withheld by the public entity shall be released. Contractor must release the subcontractor's share of retainage to each subcontractor within 7 days of receiving all or any portion of retainage. Public entity or contractor may continue to withhold retainage if good faith dispute exists (up to 150% of dispute).
There is a Process to Recover
Yes. Retainge claims must be arbitrated unless otherwise agreed by contract. Arbitration must be initated within 90 days.
In general, retainage serves two general purposes in a construction contract:
- To provide an incentive to the contractor or subcontractor to complete the project
- To give the owner some protection against problems like liens, contractual defaults, delays, and more
In most states, laws exist to regulate how the parties use the retainage concept, mostly protecting some parties against abuse of the tool from others.
Retainage limits & payment deadlines
On private construction projects, like residential or commercial jobs, California law doesn’t set a limit on the amount of retainage that can be withheld in a contract. However, they do set a deadline for withheld funds to be returned. California property owners must release retainage to the general contractor within 45 days of completion of the work. The GC must pay retained amounts to their subs and suppliers within 10 days of receipt of retainage from the owner.
On public construction projects in California, like state or municipal jobs, retained funds are limited to 5% or less prior to completion and acceptance of the project. After 95% of the work is complete, withheld funds may be reduced to 125% of the estimated value of the unfinished work.
Within 60 days of completion of the work, the public entity in charge of the project must release retention to the general contractor within 60 days. The GC must release the respective share of retainage to each subcontractor within 7 days of receiving all or any portion of retainage. If a good faith dispute exists, the public agency or contractor may continue to withhold up to 150% of the value of the disputed work.
To learn more, read the California Guide to Retainage on Public & Private Projects.