Retainage

Retainage (also called retention) is a slice of every progress payment that the paying party keeps in reserve instead of releasing to the contractor. On a job billed in stages, the contractor earns the full value of the work each period but only collects most of it; the held-back percentage accumulates in a retainage pool that is paid out near the end.

It exists to protect the owner or general contractor. If a contractor walks off, leaves punch-list items unfinished, or delivers defective work, the held money gives the paying party a cushion to bring in someone else or force the fixes. In practice it is the single biggest reason a profitable job can still leave a contractor short on cash until closeout.

Retainage flows downhill. An owner may withhold from the general contractor, who in turn withholds the same percentage from each subcontractor. That stacking is why a sub can be owed retainage for months after their own scope is done but the overall project is not.

Retainage is figured as a flat percentage of the work completed (and often of stored materials) in each billing period. Multiply the value earned that period by the retainage rate, hold that amount back, and bill the rest. Each period the held amounts add up into a running retainage balance.

Many contracts use a fixed rate for the whole job, but variable-retainage clauses are common too. A frequent arrangement is to withhold a higher rate early, then reduce or stop withholding once the job passes a milestone such as 50% complete — sometimes called variable or reducing retainage. Some public projects also cap total retainage in dollars.

Retainage is typically released at substantial completion, after the punch list is cleared and the work is accepted — though final retainage on a sub's scope may not flow until the entire project closes out and any required lien waivers and closeout documents are in hand.

Several states regulate retainage on public and sometimes private work, capping the percentage (5% is a common statutory ceiling) and setting deadlines to release it after completion. Always read the specific contract and check your state's prompt-payment and retainage statutes, because the rules vary widely.

In Simple Contractor CRM, retainage is built into construction billing rather than bolted on. You set a retainage percentage on a job, and as you bill progress draws the app tracks how much has been earned, how much was withheld, and the outstanding retainage balance still owed — so the held money stays visible instead of getting lost in a spreadsheet.