Glossary
Retainage
Retainage is a portion of each progress payment, typically a percentage, that an owner or contractor withholds until a construction project or a contractor's scope of work is finished.
Retainage, also called retention, gives the paying party leverage to make sure work is completed and defects are corrected. On each progress billing, the owner holds back a set percentage, often 5 or 10 percent depending on the contract and any legal limits, and the general contractor usually passes a similar holdback down to its subcontractors. The withheld money accumulates over the job and is supposed to be released at substantial or final completion, sometimes after lien waivers, closeout documents, and punch list items are delivered.
Retainage is a common collection problem because it is paid last, often long after the subcontractor has left the site. Disputes over unrelated issues, slow project closeout, or a general contractor's own cash problems can delay release for months. Many states have prompt payment or retainage statutes that limit the percentage that can be held, require release within a set time after completion, or require interest on late retainage. These laws vary by state and often treat public and private projects differently.
Here is a fictional example. A painting subcontractor, Coastal Coatings, completes its work on a hotel project with a $400,000 contract and 10 percent retainage. It has been paid $360,000, and $40,000 is still held back. The project reaches substantial completion, but the general contractor refuses to release retainage until a separate dispute with the owner is settled. Coastal reviews its subcontract, the state's prompt payment law, and its lien deadline, which in many states runs from completion of its own work, not from the release of retainage.
Retainage matters to a creditor because it can represent most or all of the profit on a job. Tracking retainage separately in the receivable ledger, knowing the release conditions in each subcontract, and watching lien and bond deadlines keeps that money from being forgotten or lost.
Example
Coastal Coatings has $40,000 in retainage held on a $400,000 job. It reviews its subcontract, the state prompt payment law, and its lien deadline while pressing for release.