Virginia Retainage Guide and FAQs

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Virginia Retainage FAQs

Virginia Retainage Overview

Virginia Retainage Requirements


  • Private Jobs
  • Public Jobs
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Retainage Unregulated Icon
Retainage Limit

Not Regulated by State Law


Payment Period Not Regulated Icon
Pay Period

Not Regulated by State Law


NO
PROCESS
There's No Process to Recover

Not specified


No Escrow Icon
Not Held In Escrow

In Virginia, contractors and owners do not need to hold retainage funds in a separate escrow account.

Retainage 5% Icon
5 Percent

Retainage cannot exceed 5%.


Payment Period Not Regulated Icon
Pay Period

Not specified in statute.


NO
PROCESS
There's No Process to Recover

Not specified


No Escrow Icon
Not Held In Escrow

In Virginia, contractors and owners do not need to hold retainage funds in a separate escrow account. However, some local government contracts are required to provide the option.

Retainage, also called “retention,” is an amount of money “held back” from a contractor or subcontractor during the course of a construction project. In general, retainage serves two main purposes:

  • 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. The following are resources, legal information, and answers to frequently asked questions about Virginia’s retainage requirements.

Virginia’s retainage limits and deadlines

Virginia’s retainage statutes only apply to public construction contracts. On such public works projects, the amount of retainage that can be withheld is capped at 5% of each progress payment. There are no specific timelines for the release under the retainage statutes. However, payments in general on public projects in Virginia are subject to the state prompt payment laws.

On all private projects, the amount of retainage withheld and the timing of its release will be governed by the terms of the contract.

Virginia Retainage Frequently Asked Questions

Virginia Retainage Private Projects FAQs

Does Virginia limit the amount of retainage that can be withheld from a contractor on private projects?

Virginia does not regulate retainage practices on private construction projects. Therefore, the amount of retainage withheld will be determined by the terms of the contract. However, the amount of retainage typically withheld in a construction contract will range from 5-10% of each progress payment.

• For more on retainage in general, see: The Ultimate Guide to Retainage in the Construction Industry

How long can a party withhold retainage in Virginia?

There is no specified deadline for the release of retainage on private projects. Furthermore, there are no applicable prompt payment laws for Virginia private projects. So the release of withheld retainage will also be governed by the terms of the contract.

Does Virginia require retained funds be deposited in a special account? Can securities be substituted for retainage?

Since there are no laws governing retainage on private projects in Virginia, requiring the deposit of withheld funds in an escrow account or the ability to substitute securities in lieu of retainage can be negotiated with the contracting party.

• Read more: Retention Bonds – An Alternative to Waiting for Retainage

How can I make a claim to recover retainage in Virginia?

There is no particular method to recover retainage. However, other collection tools such as filing a Virginia mechanics lien claim or pursuing breach of contract claims are available to recover retainage.

Is there a specific notice required to recover retainage in Virginia?

There is no special notice to secure the right to recover retainage on private projects in Virginia. Sending a payment demand letter and/or a notice of intent to lien is a good place to start.

Note, however, there may be some preliminary notice requirements to secure lien rights in Virginia.

Virginia Retainage Public Projects FAQs

What types of public projects are governed by Virginia’s retainage laws?

The retainage requirements in Virginia apply to all public construction contracts that provide for progress payments based on percentage of completion. This includes subcontracts on public projects that provide for similar progress payments.

Does Virginia limit the amount of retainage that can be withheld from a contractor?

Yes, no more than 5% of each progress payment may be withheld on public works projects in Virginia.

How long can a party withhold retainage in Virginia?

The retainage statutes do not specify when retainage is required to be released. However, under Virginia’s prompt payment laws, payments become due according to the terms of the contract. If the contract doesn’t specify a payment date, then payments are typically required from the state entity within 30 days of receipt of invoice, or delivery of labor/materials; whichever is later. The same applies to local entities, but the time period is extended to 45 days. Once received, all payments down the contracting chain must be made within 7 days.

Does Virginia require retained funds be deposited in a special account? Can securities be substituted for retainage?

Generally, there is no specific requirement to deposit retainage funds in any particular account, nor is there any prohibition on the substitution of securities in lieu of retainage.

However, local public works contracts of $200,000 or more for certain types of construction projects listed under Va. Code §2.2-4334(A), the bid proposal is required to provide an option for the retainage funds to be deposited in escrow.

How can I make a claim to recover retainage in Virginia?

The public project retainage statutes in Virginia do not provide a specific mechanism for making a claim for retainage. However, claims for unpaid retainage can typically be either included in a payment bond claim, as well as claims under the Virginia Prompt Payment Act, or claims for breach of contract.

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Virginia Retainage Statutes

Getting informed about prompt payment laws is important. An examination of Virginia’s retainage laws, the rules and regulations related to the amount and timing of allowable retained payments, is important to know your rights and responsibilities as a party on a construction project. Virginia’s specific laws can be found in: VA. Code Ann. §§ 2.2-4333 and 2.2-4334; and are reproduced below. Updated as of March 2021.

Retainage Statute on Private Projects

N/A

Virginia does not provide a specific retainage statute for private projects.

Retainage Statute on Public Projects

§ 2.2-4333. Retainage on construction contracts

A. In any public contract for construction that provides for progress payments in installments based upon an estimated percentage of completion, the contractor shall be paid at least ninety-five percent of the earned sum when payment is due, with no more than five percent being retained to ensure faithful performance of the contract. All amounts withheld may be included in the final payment.

B. Any subcontract for a public project that provides for similar progress payments shall be subject to the provisions of this section.

§ 2.2-4334. Deposit of certain retained funds on certain contracts with local governments; penalty for failure to timely complete

A. Any county, city, town or agency thereof or other political subdivision of the Commonwealth when contracting directly with contractors for public contracts of $200,000 or more for construction of highways, roads, streets, bridges, parking lots, demolition, clearing, grading, excavating, paving, pile driving, miscellaneous drainage structures, and the installation of water, gas, sewer lines and pumping stations where portions of the contract price are to be retained, shall include in the Bid Proposal an option for the contractor to use an escrow account procedure for utilization of the political subdivision’s retainage funds by so indicating in the space provided in the proposal documents. In the event the contractor elects to use the escrow account procedure, the escrow agreement form included in the Bid Proposal and Contract shall be executed and submitted to the political subdivision within fifteen calendar days after notification. If the escrow agreement form is not submitted within the fifteen-day period, the contractor shall forfeit his rights to the use of the escrow account procedure.

B. In order to have retained funds paid to an escrow agent, the contractor, the escrow agent, and the surety shall execute an escrow agreement form. The contractor’s escrow agent shall be a trust company, bank or savings institution with its principal office located in the Commonwealth. The escrow agreement and all regulations adopted by the political subdivision entering into the contract shall be substantially the same as that used by the Virginia Department of Transportation.

C. This section shall not apply to public contracts for construction for railroads, public transit systems, runways, dams, foundations, installation or maintenance of power systems for the generation and primary and secondary distribution of electric current ahead of the customer’s meter, the installation or maintenance of telephone, telegraph or signal systems for public utilities and the construction or maintenance of solid waste or recycling facilities and treatment plants.

D. Any such public contract for construction with a county, city, town or agency thereof or other political subdivision of the Commonwealth, which includes payment of interest on retained funds, may require a provision whereby the contractor, exclusive of reasonable circumstances beyond the control of the contractor stated in the contract, shall pay a specified penalty for each day exceeding the completion date stated in the contract.

E. Any subcontract for such public project that provides for similar progress payments shall be subject to the provisions of this section.

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