Retainage is money you've earned and can't have yet. On a contract that holds 10%, every progress payment arrives at 90%, and the missing tenth accumulates until the job is complete, accepted and papered. For a general contractor on a commercial job it's a nuisance. For a sub working under a GC, it can be the whole margin, held for months by someone who is themselves waiting on an owner.
The mechanics
The contract states a percentage, commonly 5% or 10%, and what releases it: substantial completion, final completion, the owner's acceptance, or a fixed number of days after one of those. Each pay application shows the earned amount, the retainage held on it, and the net due. The held total shows on every invoice as a running figure, and the final invoice requests its release along with the last draw.
Some contracts step it down: 10% held until the job is half complete, then 5%, or no further retainage after 50%. Many US states cap retainage on public work, often at 5%, and set deadlines for release; private contracts are mostly whatever was signed, though several states now limit those too. Check your state before you agree to 10% with no release date.
The arithmetic on a subcontract
A tile sub signs a $42,000 subcontract on a twelve-week job, billed monthly, 10% retainage, release 30 days after the GC's final completion.
| Month | Earned | Paid (90%) | Held |
|---|---|---|---|
| 1 | $12,000 | $10,800 | $1,200 |
| 2 | $16,000 | $14,400 | $2,800 |
| 3 | $14,000 | $12,600 | $4,200 |
The sub's material and labor for the job cost $30,600. By the end of month three the sub has collected $37,800 and is $7,200 ahead, with $4,200 still held. If the GC's final completion is two months after the sub finishes, and the release is 30 days after that, the sub waits three months for $4,200, which is 45% of the job's gross margin. If the GC is slow, or the owner is, the wait is longer, and the sub's next job is financing this one.
The retainage and progress billing calculator runs this table for any contract value, schedule and percentage.
What to negotiate before you sign
- The percentage. 5% is common and defensible; 10% is negotiable on private work.
- The release trigger. Your substantial completion, not the whole project's. A sub who finishes in month three shouldn't wait for the landscaper in month nine.
- A step-down. Retainage stops accruing after 50% complete, or drops to 5%.
- Pay-when-paid versus pay-if-paid. A GC who only has to pay you when the owner pays them is common; one who never has to pay you if the owner doesn't is a clause to strike or price in.
- Interest on late release. Some states require it; a contract can add it.
Keep it honest in the job's numbers
Retainage distorts job costing in two directions. Count it as collected and the job looks paid when it isn't; forget it and the job looks underpaid forever. The honest record is: earned per draw, paid per draw, held running total, and what's left to collect including the held amount. Obra records each payment at the amount actually received and shows what's left to collect against the contract, so the held money sits in that figure until the release clears and the project's cash position is the real one. The progress billing guide covers the rest of the invoice.
Questions people ask
Is retainage common on residential remodels? Rarely between a homeowner and their contractor, unless a lender requires it. It's common between a general contractor and subs, and on any commercial or public work.
Can a GC hold more retainage on me than the owner holds on them? Contractually, sometimes. Several states prohibit it; in the others, it's a clause to negotiate. Ask what the owner holds and match it.
What if retainage is never released? Send written notice under the contract, then use the state's prompt-payment and lien remedies; the deadlines for a mechanic's lien run from your last work, not from the release date, so don't wait past them.
Get the template
The free progress invoice template below keeps retainage on its own line: what was earned, what the client holds, and what is actually due this period, invoice after invoice. Enter your email and the download starts right away.