What is retainage in construction and when do I get it back?

Retainage (also called retention) is a percentage of every progress payment, usually 5 to 10 percent, that the owner or general contractor holds back until the work is finished. You get it back after substantial completion, once the punch list is done and the closeout documents are in. The exact timing is set by your subcontract and, in many states, limited by law.

Why it hurts subcontractors most

Retainage is meant to make sure the job gets finished. In practice the trades that finish first wait the longest. An excavation or underground plumbing subcontractor may be done in month two of a fourteen month project and still be waiting for the last 10 percent a year later.

It is also, very often, the profit. On a $400,000 subcontract at 10 percent, $40,000 is held. If the job was bid at an 8 percent net profit, that is $32,000. Until retainage is released, the job has paid you less than it cost.

How it is calculated

Each application for payment applies the percentage to the work completed to date:

• Completed to date: $150,000
• Retainage at 10 percent: $15,000
• Earned less retainage: $135,000

The amount held grows with every bill, then is paid in one piece at the end.

What the rules usually are

Retainage is governed first by your contract and second by state law.

• Many states cap the percentage, especially on public projects, and some cap it on private work too.
• Some require it to be reduced once the project is half complete.
• Most prompt payment laws set a deadline for releasing it after completion, with interest when it is late.
• On federal work the contracting officer decides whether to hold any at all.

The details differ in every state and change often. Look up the law where the project is, or ask a construction attorney, before you sign.

What to negotiate before signing

• A lower rate. 5 percent instead of 10.
• A reduction at 50 percent complete. From 10 to 5, or no further retainage after halfway.
• Release when your scope is complete, not when the whole building is.
• The same terms the GC has with the owner. If the owner holds 5 percent from the GC, the GC should not hold 10 from you.
• No retainage on stored materials or on material-only lines.
• A retainage bond or escrow in place of cash, where the owner accepts one.

You will not get all of these. You will get none you do not ask for.

How to get it released

1. Finish your punch list quickly and get it signed off in writing.
2. Turn in closeout documents early: operation and maintenance manuals, warranties, as-built drawings, test reports, attic stock.
3. Send a separate retainage invoice with the final lien waiver the contract requires. Do not wait to be asked.
4. Know your deadline. Lien and bond claim deadlines usually run from your last day of work, not from the day retainage was due. Do not let one pass while you wait politely.
5. Follow up on a schedule. Retainage is the easiest receivable to forget, because it never appears as a late invoice.

Track it as its own number

For every job, know how much retainage is held, how old it is, and what stands between you and its release. Added across all jobs, it is often the largest receivable in the company, and the one least often looked at.

Where ConstructStream fits

ConstructStream holds the retainage percent on each invoice and keeps the amount held on every job in view. When it is due, you release it as its own invoice, and that invoice is kept apart from billed-to-date so the job's progress numbers stay true. Receivables aging shows what is owed, by client and by age.