Retainage in Construction: How It Works on a Bid
Retainage is the part of each progress payment the owner holds back until the work is finished, usually 5% to 10%. It protects the owner, ties up the contractor's cash and flows down to every subcontractor.
Common in US construction contracts, on public and private work, from the general contractor down to subcontractors.
How Retainage Is Held and Released
Retainage is taken from every progress payment and builds up over the life of the job. It moves through three stages.
Bill for the Work Done
Each month the contractor sends a pay application listing the work completed against the schedule of values, which is the contract price split into line items. If $200,000 of work was done that month, that is the amount billed.
Hold Back the Retainage
With 10% retainage, the owner pays $180,000 and keeps $20,000. The general contractor holds back the same share from each subcontractor, so retainage builds up at every tier of the job.
Release It at Completion
Once the work reaches the completion point named in the contract and the punch list, the final list of fixes, is closed, the owner releases the retainage. The general contractor then pays out what it held from subcontractors.
Retainage, Retention and the Pay Application
Retainage shows up in the contract's payment terms and on every pay application. The words change by region and by contract, but the mechanics stay the same, with a share of each payment held until the work is accepted.
- The rate, and any reduction partway through the job, is set in the contract.
- The release point can be substantial completion, final completion or the end of a warranty period.
- Flow-down clauses pass the owner's retainage terms to every subcontractor.
| Term | What It Means |
|---|---|
| Retainage | The share of each payment held back until completion |
| Retention | Another name for retainage, more common outside the US |
| Pay Application | The contractor's monthly bill, showing work done and retainage held |
| Schedule of Values | The contract price split into line items, used to measure progress |
| Substantial Completion | The point where the owner can use the project, often when retainage is released |
| Flow-Down | A clause passing the owner's terms down to subcontractors |
Retainage Changes When You Get Paid on Every Bid
On a $2 million job with 10% retainage, $200,000 can sit with the owner for months after the crews have left. Before pricing, the bid team checks the retainage rate, the release point and whether the general contractor's terms match what it will hold from its subcontractors. On long jobs, some contractors add the cost of carrying that cash to their markup.
| Month 3 billed to date | $600,000 |
| Month 3 retainage held | $60,000 |
| Month 6 retainage held | $120,000 |
| Month 9 retainage held | $180,000 |
| Month 12 retainage held | $200,000 |
| Released at completion | $200,000 |
These terms sit in the contract and general conditions, far from the drawings. The Takeoff AI reads the scope of work and technical specifications alongside the drawings, flags deviations between the three and returns the counted and priced scope, so the estimator can weigh the payment terms against a number already checked.
- Scope counted and priced from the drawings, traced to the sheet
- Deviations flagged across the scope of work, specifications and drawings
Longer Jobs Hold Your Cash for Longer
Retainage is held from the first pay application to the last, so the longer the job, the more cash sits with the owner. On large industrial and data center projects that run for years, a 10% hold can rival the profit on the job. On public projects, many states also set their own limits on retainage. Reading those terms before the number goes in is part of pricing the job.
“Retainage never shows up on the takeoff, but it shows up in your cash flow.”
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Retainage in Construction: How It Works on a Bid
Retainage is money held back from each progress payment until the project is finished and accepted. It is usually 5% to 10% of every payment and protects the owner if work is left incomplete or defective.