Retainage refers to a portion of payment on a construction project that is withheld until the work is complete. Typically calculated on a percentage basis, retainage is usually about 5-10% of the contract’s total value. 

Also known as “retention,” it is a common provision in construction contracts. While very few states have laws requiring it, there are laws that limit how much retainage can be withheld on a project, and how long it can be withheld. Requirements vary by state and by project type.  

Developers and project owners say that retention helps ensure timely completion. It provides a reserve of funds in case the sub doesn’t complete the work properly. For subcontractors, it can mean a potential cash flow problems that could increase their costs. Subs often need to pay their own subs and suppliers before the project is complete.

For general contractors, withholding money is a way to ensure that a subcontractor completes their work. In theory, any amount withheld as retainage would be paid to the subcontractor after the job is complete. In some situations, retainage may be tied to a deadline the prime contractor must meet or suffer a penalty. Every state has its own rules and regulations regarding retainage.

The posts on this page go into a lot more detail about retainage, and how it applies in different situations.

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