What is retainage?
Retainage, or retention, is a percentage held back from each progress payment and released after the work is accepted. Five or ten percent is common, so a contractor who has billed $100,000 may have $5,000 to $10,000 sitting unpaid until the end.
The reason it exists is straightforward: the owner or general contractor keeps leverage until the last punch item is done and the paperwork is in. The reason it hurts is just as straightforward. Retainage comes out of the margin, not the cost. A job run at a ten percent margin with ten percent held back is a job where every dollar of profit is in someone else's account until closeout.
What to check before signing
- The percentage, and whether it steps down. Some contracts drop retainage to half once the work is a set percentage complete.
- What releases it. Final acceptance, as-builts, lien releases, warranties, and closeout documents are all common conditions. Know which apply to you.
- Whether your subs are held the same way. Holding retainage from a sub while being paid in full on that scope is a fight waiting to happen, and the reverse quietly finances someone else's job with your money.
Public work is different
On public contracts the percentage and the release timing are often set by state law rather than negotiated, and the rules differ state to state. Read the specific statute your project falls under, or ask your attorney, rather than assuming the private-work terms carry over.
Track it as its own number
Retainage is not a receivable that is merely late, and treating it as ordinary aging hides it. Keep the held amount visible per job, because it is usually the largest sum a small contractor is owed and the last one anyone chases.