💵 Retainage Guide
Retainage (retention) is money that's rightfully yours — held until project completion. Here's how to manage it and get paid.
What is Retainage?
Retainage is a percentage of each progress payment withheld by the owner (and passed down to subs) until project completion.
Purpose: Ensure contractors complete their work and address punch list items.
Typical rates:
- Private work: 5-10%
- Public work: 5% (often capped by law)
- California public: 5% maximum by law
The Cash Flow Impact
On a $1M subcontract with 10% retention:
- You earn $100,000 that you don't receive
- For 12-18 months (typical project duration)
- That's your profit margin held hostage
| Contract Value | Retention % | Retained Amount |
|---|---|---|
| $500,000 | 5% | $25,000 |
| $500,000 | 10% | $50,000 |
| $1,000,000 | 5% | $50,000 |
| $1,000,000 | 10% | $100,000 |
State Laws on Retainage
California
- Public works: Maximum 5%
- Private works: No statutory limit (negotiate)
- Release to subs: Within 7 days of owner payment to GC
- Interest: 2% per month if late (public)
Other States with Limits
| State | Public | Private |
|---|---|---|
| Texas | 10% | 10% |
| Florida | 10% → 5% at 50% | 10% |
| New York | 5% | No limit |
| Arizona | 10% | No limit |
| Colorado | 5% | No limit |
Check your state — rules vary significantly.
When is Retention Released?
Typical Milestones
| Milestone | Release |
|---|---|
| Substantial completion | 50% release (sometimes) |
| Final completion | Remaining balance |
| Warranty period end | Sometimes held longer |
Subcontractor vs Prime
For subs: Retention should be released when:
- Your scope is complete and accepted
- Punch list items are resolved
- Required documentation submitted
Don't let GCs hold your retention until their entire project is complete if your work was accepted earlier.
Getting Your Retention Released
1. Know Your Contract
Look for:
- Retention percentage
- Release milestones
- Time limits for release
- Documentation requirements
- Interest on late payment
2. Document Completion
Before requesting release:
- Scope of work complete
- Punch list items resolved
- As-built drawings submitted
- O&M manuals delivered
- Warranties provided
- Final lien waiver ready
3. Submit Formal Request
Send written request including:
- Project name and contract reference
- Amount of retention held
- Statement that work is complete
- List of documentation provided
- Request for payment within contract terms
4. Follow Up
If no response:
- Send reminder at contract deadline
- Call project manager
- Escalate to management
- Note interest accruing (if applicable)
- Consider lien rights (private work)
Retention Release Letter Template
[Your Company Letterhead]
Date: [Date]
To: [GC/Owner Name] [Address]
Re: Request for Retention Release Project: [Project Name] Contract: [Contract Number/Date]
Dear [Name]:
[Company Name] has completed all work under our contract for the above project. Our scope was accepted on [date], and all punch list items have been addressed.
We request release of retention in the amount of $[Amount].
Enclosed please find:
- Final conditional lien waiver
- Warranty documentation
- As-built drawings
- O&M manuals
Per our contract, retention is due within [X] days of substantial completion. Please remit payment by [date].
Thank you for your prompt attention.
Sincerely, [Signature] [Name, Title]
If They Won't Pay
Step 1: Demand Letter
Send formal demand with:
- Specific amount owed
- Contract reference
- Deadline for payment
- Statement of intent to pursue remedies
Step 2: Preserve Lien Rights
On private work:
- File mechanics lien before deadline
- Retention is lienable
Step 3: Legal Action
Options include:
- Small claims court (if under limit)
- Breach of contract lawsuit
- Payment bond claim (if bonded)
Negotiating Better Terms
At Contract Signing
| Ask For | Benefit |
|---|---|
| 5% instead of 10% | Less cash tied up |
| Reduction at 50% complete | Earlier partial release |
| Sub-specific release | Don't wait for whole project |
| Interest on late release | Incentive to pay |
| Retention bond option | Replace cash with bond |
Retention Bonds
A retention bond allows:
- You receive retention payments as earned
- Owner holds bond instead of cash
- Bond cost: typically 1-2% of retention amount
Example:
- Retention: $50,000
- Bond cost: $500-1,000
- You get $50,000 now instead of in 18 months
- Worth it if you need the cash flow