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Estimating & Biddingaka: retentionaka: holdback

Retainage

In Plain English

Money withheld from each payment to the contractor as a guarantee that they will finish the work correctly.

Definition

Retainage is a percentage of each progress payment that the owner withholds from the contractor until the project reaches substantial or final completion, typically 5 to 10%. It protects the owner by providing financial incentive for the contractor to complete the work and correct deficiencies. Retainage release is often tied to the completion of the punch list.

Why It Matters in Bidding

Retainage directly squeezes contractor cash flow, since commonly 5 to 10 percent of every progress payment is withheld and may not be released until months after the work was performed. Estimators and contractors must account for this carried cost in their bids and cash-flow projections, and subcontractors often face retainage flowed down from the general contractor, compounding the financing burden across the project chain.

Example

With 10 percent retainage held on every monthly pay application, the contractor was financing roughly $280,000 of completed work and only recovered it once the punch list was closed out.

Related Terms

Retainage ReleasePunch ListSubstantial Completion

Frequently Asked Questions

Retainage commonly runs 5 to 10 percent of each progress payment, though the exact rate is set by the contract and, on public projects, often capped by state statute. Some contracts reduce or stop withholding once the work passes a milestone, such as 50 percent completion, to ease the contractor's cash burden.
Release is usually tied to substantial or final completion, frequently after the punch list is finished and final inspections pass. Some contracts release a portion at substantial completion and the balance at final completion. Lien waivers, warranties, and close-out documents are often required before the owner pays out the retained funds.
General contractors typically flow retainage down, withholding the same percentage from subcontractors. Because subs often finish their scope early and wait until overall project completion for release, they can carry retained funds for many months. This strains smaller subs' cash flow, which is why prompt-payment and retainage-cap laws exist in many states.

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