Retainage in construction explained: how it works, typical rates, state rules, retainage release and accounting, and how to collect it on time.
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Retainage is the money you already earned that the customer has not paid you yet, on purpose. On most commercial jobs, 5 or 10 percent of every progress payment gets held back until the project is finished. On a made-up $400,000 subcontract, that is $20,000 to $40,000 of your profit sitting in someone else's bank account for months.
I ran restoration companies for more than 14 years, and the retainage that hurt was never the retainage I tracked. It was the retainage nobody asked for. The job closed out, the crew moved on, the punch list got signed, and the last 10 percent sat on the books until somebody noticed it in the 120-day column. By then the project manager on the other side had left, and the money took far longer to collect than it should have.
This guide covers how retainage in construction works, the math on a sample pay application, what the rules look like in five places, how to account for it, and a step-by-step process for getting retainage release on time.
KEY TAKEAWAYS
Retainage is a portion of the contract price that the paying party withholds from each progress payment until the work, or a defined part of it, is complete. The owner holds retainage from the general contractor. The general contractor usually holds the same percentage, or more, from each subcontractor. Suppliers are sometimes held too.
The idea is simple: the owner wants leverage to make sure the job gets finished, the punch list gets done and the subs get paid before the contractor walks away. The money is earned. It is just not due yet.
They are the same thing. "Retainage" is more common in the eastern and central US and in AIA documents. "Retention in construction" is the term California law and most of the West Coast use. You will also hear "holdback" in Canada. If your contract says either word, the mechanics are the same.
| Relationship | Typical practice | What to watch |
|---|---|---|
| Owner to general contractor | 5 to 10 percent of each pay application | Released at substantial or final completion, per contract and state law |
| GC to subcontractor | Usually the same rate the owner holds, sometimes higher | Early trades (sitework, foundations) can wait a year or more for the whole project to close |
| Sub to sub-tier or supplier | Less common, set by the subcontract or PO | Pass-through clauses that tie your release to someone else's |
Here is how retainage works on a sample job (the numbers are made up). Retainage is calculated on the value of work completed (and often stored materials) each billing period, not on the whole contract up front. If you bill on an AIA G702 and G703, the retainage lines are built into the form. For the full picture of pay apps and the schedule of values, see our pay application guide to AIA G702 and G703. For how billing dates and payment due dates are set in the first place, read our construction payment schedule and progress payments guide, and for the rest of the billing cycle, our guide to construction accounts receivable.
EXAMPLE
Summit Drywall & Framing has a $400,000 subcontract on a medical office building. The subcontract holds 10 percent retainage, dropping to 5 percent on new billings once the job is 50 percent complete.
| Pay app | Work this period | Retainage held | Amount paid | Total retainage |
|---|---|---|---|---|
| 1 | $80,000 | $8,000 (10%) | $72,000 | $8,000 |
| 2 | $120,000 | $12,000 (10%) | $108,000 | $20,000 |
| 3 | $120,000 | $6,000 (5%) | $114,000 | $26,000 |
| 4 (final) | $80,000 | $4,000 (5%) | $76,000 | $30,000 |
Summit has billed and been paid $370,000. The last $30,000, 7.5 percent of the contract, comes only with a separate retainage invoice after the GC accepts the work and the closeout package is complete.
Example company and figures are made up for illustration.
Two things stand out. First, $30,000 is very likely more than Summit's net profit on the job. Retainage is often the margin. Second, nothing in that table pays itself. Somebody at Summit has to bill for it, chase the paperwork and follow up.
Your contract sets the starting point, but many states cap the rate, set release deadlines or add penalties for holding retainage too long. Public projects usually have stricter rules than private ones. The rules below are examples to show how much they vary. Rules vary by state and they change often (California and New York both changed theirs recently), so always read the current statute for your state and project type.
| Jurisdiction | What the law says (summary) | Source |
|---|---|---|
| California (private) | For private contracts entered on or after January 1, 2026, retention is capped at 5 percent of each payment and 5 percent of the contract price in total. Exceptions include residential projects of four stories or less that are not mixed-use, and some subcontractors who do not provide a required performance and payment bond. Owners must pay retention within 45 days after completion. A direct contractor must pass a sub's share through within 10 days of receiving it. Wrongfully withheld retention carries a penalty of 2 percent per month plus attorney's fees. | Cal. Civil Code §§ 8811, 8812, 8814, 8818 (SB 61, 2025) |
| New York (private) | On private construction contracts over $150,000, retainage may not exceed 5 percent of the contract sum, and a contractor or sub may not hold a higher percentage than the owner holds. Retainage must be released no later than 30 days after final approval of the work. Late retainage carries interest of 1 percent per month. | N.Y. General Business Law § 756-c |
| Texas (private) | Separate from any contract retainage, the owner must keep a statutory reserve of 10 percent of the contract price for 30 days after completion to protect lien claimants. An owner who fails to can be liable to subs who perfect liens. Texas also has its own notice rules for claims on contractual retainage, so check Chapter 53 for your deadlines. | Tex. Property Code § 53.101 and Chapter 53 |
| Florida (public) | Since October 1, 2020, state and local government projects may hold no more than 5 percent from each progress payment (Florida DOT contracts follow separate rules). Florida does not set a statutory retainage rate for private projects. The contract controls. | Fla. Stat. §§ 255.078 and 218.735 |
| Federal projects | Retainage is not automatic. The contracting officer may withhold it based on the contractor's performance, capped at 10 percent of the approved amount, and must pay it promptly once all contract requirements are complete. | FAR 32.103 and FAR 52.232-5 |
This is not legal advice. Retainage rules vary by state, by public vs private work and by contract date, and they change. Read your contract, check your state's current statute, and talk to a construction attorney before you rely on a deadline or threaten a penalty.
Retainage release is almost never automatic. It is triggered by a milestone in the contract, and then held up by whatever paperwork is missing. Know both before the job starts.
In my experience, retainage gets stuck on documents far more often than on disputes. Build this list into your job closeout:
| 1 | Signed punch list sign-off or certificate of substantial completion. |
| 2 | Lien waivers: usually a conditional final waiver from you, and sometimes from your suppliers and sub-tiers. See conditional vs unconditional lien waivers for which one to sign when. |
| 3 | Warranties, O&M manuals and as-builts for your scope. |
| 4 | Final change order reconciliation so the contract sum matches what you are billing. |
| 5 | Consent of surety if the job is bonded, plus any certificates of insurance the GC still needs. |
| 6 | A separate retainage invoice or final pay application that shows the retainage amount as now due. |
Keep the whole package in one place with dates. If you ever need to escalate, a clean file is what wins. Our post on bulletproof documentation covers what to keep and why.
Bring one overdue invoice.
Retainage you have been waiting on counts. We'll show you how it would be followed up and tracked until it is paid.
Retainage accounting trips up a lot of contractors because the money is earned but not yet due. If you lump it into regular receivables, two things go wrong: your aging report looks worse than it is during the job, and after the job the retainage quietly ages past 90 and 120 days without anyone treating it as collectible.
Under the revenue recognition standard most contractors follow (ASC 606), retainage is generally recognized as revenue as the work is performed, not when the cash comes in. Talk to your CPA about how your specific contracts should be booked, especially if you report percentage of completion to a bonding company.
A common way to handle retainage in QuickBooks Online is to create a "Retainage Receivable" other current asset account and a retainage item mapped to it, entered as a negative line on each progress invoice. Then a final retainage invoice reverses it. Our guide to QuickBooks for contractors walks through the setup alongside job costing.
Pull a retainage schedule every month: job, customer, amount held, expected release milestone, expected date, and status of closeout documents. Review it next to your AR aging report. Any retainage on a job that finished more than 30 days ago with no invoice out is a problem to fix this week.
For the broader process of collecting on commercial jobs, including demand letters and lien steps, read how to collect unpaid construction invoices.
Retainage fails for one boring reason: the follow-up lives in someone's head, and that person is busy with jobs that are still running. Software does not change the contract or the law, but it does stop the reminder from being forgotten.
AR Workflow syncs with QuickBooks, so when you send the retainage invoice it goes onto a follow-up schedule automatically. It sends payment reminders by email, plus texts and ringless voicemail from a dedicated number, stops when the invoice is paid and pauses when someone promises a date. The aging dashboard shows retainage invoices next to everything else, so a $30,000 balance from a job that closed in spring does not hide in the 120-day column. For residential jobs where the homeowner holds back a final payment until the punch list is done, the reminders include a payment link they can use from their phone. See how it fits commercial work on our construction accounts receivable software page.
Retainage means a percentage of each progress payment, usually 5 to 10 percent, that the owner or general contractor holds back until the work is complete. It is money you have earned that is paid at the end of the job or your scope, once the release conditions in the contract are met.
10 percent has long been common, often reduced to 5 percent once the job is half done. Some states cap retainage at 5 percent on public work (Florida, for example), and California and New York cap most private work at 5 percent as well. Rules vary by state. Check your contract and your state's statute.
It depends on the contract and state law. Some states set a deadline, such as 45 days after completion for owners on private work in California, or 30 days after final approval in New York. Many states also require a GC to pass retainage through to subs within a set number of days after the GC receives it. If your state has no rule, the contract controls.
Yes. Retainage and retention in construction mean the same thing. California statutes and much of the West Coast say "retention," while AIA documents and most other regions say "retainage."
In many states, yes, as long as you preserved your lien rights with any required notices and you file within the deadline. Deadlines usually run from your last day of work, so waiting for retainage can quietly cost you the right to lien. Our notice of intent to lien guide covers the steps. Check your state's statute and talk to a construction attorney.
Post it to a separate retainage receivable account when you bill each pay application, then move it into regular accounts receivable when you invoice the retainage at release. Your CPA can confirm the right treatment for your contracts.
Related reading
Your retainage, not a feature tour.
Bring one overdue invoice to a demo and see what AR Workflow would send, when, and how it would be tracked until it is paid.
Photos: Unsplash. This article is general information, not legal or accounting advice. Statutes summarized as of November 2026. Rules vary by state; check current law for your state and talk to a construction attorney.
Sam owned and ran three restoration companies for more than 14 years and collected over $100 million in receivables. He built AR Workflow in 2020 to give contractors the collections system he wished he'd had.
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