Retainage (also called retention, particularly outside the US) is a percentage of each progress payment that your customer withholds until the work — or the whole project — is complete. Earn $50,000 this month under a 10% retainage clause, and the check is for $45,000. The other $5,000 isn't gone; it's held, accumulating month over month, payable when the contract's release conditions are met.
For subcontractors, retainage is routinely the difference between a project that cash-flows and one that doesn't: on a typical job it equals most or all of the profit margin, held until the very end. Understanding exactly how it's calculated — and billed for release — is not optional.
Why retainage exists
It's completion insurance. Construction work is hard to un-buy: if a contractor walks off a 90%-complete job, the owner must hire someone else to finish and fix, at a premium. Holding back a slice of every payment keeps the incentive to finish — punch list and all — attached to real money, and gives the owner a fund to finish the work if the contractor doesn't. It flows downhill: owners hold retainage on GCs, and GCs hold it on subs, usually at the same rate.
Typical terms
- Rate: 5% and 10% are the overwhelming standards in the US; 10% dominates private work.
- Base: applied to earned value each period — commonly with separate rates for completed work and stored materials (they can differ; some contracts hold nothing on stored materials).
- Step-down: many contracts reduce the rate at a milestone — e.g., 10% until 50% complete, then 5% (or zero) on further work.
- Limits: many US states cap retainage rates or mandate release timing, especially on public projects — and terminology and rules differ again in other countries. Your contract plus applicable law govern; check both.
How to calculate it on a pay application
The rule that prevents most errors: retainage is computed on cumulative earned value, not on this month's billing. Each application recomputes total retainage on everything completed and stored to date; the amount withheld this month is simply the change from last application. Getting this wrong — applying the rate only to the current period — works by coincidence until a stored-materials entry, a step-down, or a certification cut breaks it.
- Total completed to date
- $135,400.00
- Materials presently stored
- $6,500.00
- Retainage on completed work (10%)
- $13,540.00
- Retainage on stored materials (10%)
- $650.00
- Total retainage held to date
- $14,190.00
- Held on previous applications
- $9,250.00
- Withheld from this payment
- $4,940.00
On the pay application summary, total retainage ($14,190) is subtracted from total earned before previous certificates come off — see the eight-line walkthrough in our fill-out guide.
Watch the base when rates differ: completed-work retainage applies to work completed (previous + this period), while stored-materials retainage applies only to what's presently stored. When stored materials get installed, their value moves between bases — good forms handle the shift automatically.
Getting it back: release
Release terms live in your contract. The common patterns: full release with final payment after completion, acceptance, and final lien waivers; partial or line-item release at substantial completion (sometimes retainage reduces to a fixed punch-list holdback); or step-down reductions along the way. Billing for release is itself a pay application — typically a final application where the retainage line drops to the released amount, turning the held money into current payment due. Missing paperwork (final waivers, closeout documents, consent of surety where bonded) is the most common reason retainage sits unpaid long after the work is done.
Two habits protect you: track your held retainage as a running receivable per project — it's your money, with a due date defined by contract conditions — and start the closeout paperwork before the last application, so release isn't waiting on documents you could have sent a month earlier.
Negotiating retainage
- Ask for the step-down: 10% to 50% completion, then 5%, is a mainstream ask that halves the pain on the back half of the job.
- Zero on stored materials is often accepted — the materials themselves are the security.
- Early trades finish early: if your scope completes in month 3 of a 14-month project, ask for release at your completion, not the project's — otherwise your margin waits a year for other trades' punch lists.
- Match upstream: subs can reasonably insist their retainage terms mirror what the owner holds on the GC.
Frequently asked questions
- Is retainage the same as retention?
- Yes — same concept, different regional vocabulary. US contracts usually say retainage; UK, Australian, and New Zealand contracts say retention (and pair it with progress claims rather than pay applications). This site's documents use whichever term matches the market you pick.
- Is retainage legal everywhere?
- Broadly yes, but heavily regulated: many US states cap the rate (often at 5% or 10%), restrict it on public projects, or mandate release deadlines with interest for late release. Other countries regulate retention differently again. The contract sets the terms; statute sets the limits.
- Do I hold retainage on my sub-subcontractors?
- You may, if your subcontracts provide for it — and most subs mirror the rate held on them, so the risk flows down proportionally. Be aware that prompt-payment laws in many places require you to pass released retainage down promptly.
- Does retainage earn interest?
- Usually not for private work unless the contract says so. Some public projects and some state statutes require retainage be held in interest-bearing accounts or paid with interest. If it matters to you, negotiate it — silence means no.
