Retainage

Retainage, also called retention, is a percentage of each progress payment that the owner or general contractor withholds until the project or a defined phase is complete and accepted. It is meant to protect the paying party against unfinished or defective work. The contract sets the percentage and the release conditions, within whatever limits state law imposes.

For the contractor, retainage is earned money that sits in someone else's account, often for months after the crews have left, and on a thin-margin job it can equal the entire profit. Release usually depends on closeout documents: punch list, as-builts, warranties and final lien waivers. Many states cap retainage or set release deadlines, especially on public work; the rules vary and change.