Glossary

Retainage

Also known as: Retention

Retainage is a percentage of each progress payment—commonly 5% to 10%—that the owner withholds from the contractor, and the contractor in turn withholds from its subcontractors, until the project reaches an agreed completion milestone, incentivizing timely, complete performance.

Retainage is typically released at substantial completion, or stepped down in stages as the project nears completion, with a final reduced holdback reserved until punch-list items and closeout documentation are complete. Many states cap the allowable retainage percentage and impose prompt-payment deadlines for its release, particularly on public projects, to protect subcontractor cash flow. Because 5–10% of contract value withheld across an entire project can represent a significant sum, some contractors elect to post a retainage bond in lieu of cash withholding, freeing up working capital while still giving the owner comparable security. From the owner and lender's perspective, retainage functions as a self-funded completion guarantee layered on top of (not a substitute for) any performance bond, and its scheduled release is a standard line item tracked in the draw schedule.