What Is Retainage in Construction?

Name: Quality Business Plan by Dr. Paul Borosky
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The Short Answer

What Is Retainage?

Textbook Definition

Retainage, also called retention, is a portion of each progress payment that an owner or contractor withholds until the work is complete, as security that the job will be finished.

In Plain English

Retainage is the slice of every payment your customer keeps back until the job is done. It is your money. You just do not get it yet.

Why It Matters

Why Does Retainage Hurt Small Contractors So Much?

Owners often hold back around 10% of each payment, according to trade press, and the range is commonly 5% to 10%. Source: EC&M, August 2026. The holdback sounds small. It is not.

Take a $500,000 job. A 10% holdback is $50,000. The average remodeler in the NAHB 2026 study kept a net profit of 6.3%, which on $500,000 is about $31,500. The retainage you wait for is about 1.6 times the profit you hope to make. For a few months, the owner is holding more of your money than you will earn.

Subcontractors feel it most. In the Siteline 2026 survey, about 43% of subs waited more than 90 days for final payment and retainage, compared with 15% of general contractors. Retainage also flows downhill: a general contractor often holds it from subs, who hold it from their own subs.

Signs retainage is hurting you:

Your profit is sitting in retainage on several jobs and you could not name the amounts.
You finish the work and then wait months for the last 10%.
You do not know what event releases the money on each job.
The punch list drags because nobody owns it.
Retainage is not on your cash calendar.
You have never asked a customer to lower it.

Three or more? Money you earned is working for your customer, not for you. Treat it like any other receivable.

The Fix

How to Keep Retainage From Choking Your Cash

You cannot always avoid retainage. You can plan for it, shrink it, and collect it faster.

Read the retainage clause before you sign.
Find the percentage, when it can be reduced, what releases it, and who decides. A vague clause is a long wait.
Ask to reduce or step it down.
Some owners will agree to lower retainage once the job is half done, or to hold it only on the work, not on materials. You will not get it if you do not ask, and the time to ask is before the contract is signed.
Track retainage like a receivable.
Keep a list by job: amount held, what releases it, the date you can bill it, and the deadline for any lien or notice rights. Put the expected receipt date on your cash calendar.
Finish the punch list fast.
The punch list is the last set of fixes before final payment. Assign it to one person, set a date, and close it. Every day of delay is a day your money is held.
Bill for retainage the day you are eligible.
Do not wait for the owner to ask. Send the bill the day the release event happens, with every waiver or document the contract requires.
Match your sub terms to your own.
If you hold retainage from subs, release it when you are released, and do it in writing. Paying subs promptly keeps good subs. See the subcontractor guide.
Price it into the bid.
If you expect to carry $50,000 for six months, that costs you money. Include the cost of carrying it when you bid the job.

Who Can Hold How Much

Retainage Rules: Florida, Federal, and Other States

Retainage rules depend on who is paying and where the job is. This table shows the picture. Check the current law for your job.

Type of work	What the rule says	Where
Florida public work (contracts over $200,000)	A public entity may withhold no more than 5% of each progress payment. It may withhold less. Released retainage that reaches a contractor must be passed to subs and suppliers on time. The rule does not cover contracts of $200,000 or less.	Fla. Stat. 255.078 (2022 text)
Florida local governments	Local governments pay under a separate prompt-payment law. A trade source reports a 5% cap for projects advertised after Oct. 1, 2020, but we could not confirm the current text. Check before you rely on it.	Fla. Stat. 218.735
Florida private work	We found no private retainage cap. The contract controls. Payment timing falls under the private prompt-payment law, which also covers the final retainage balance after the punch list.	Fla. Stat. 715.12
Federal contracts	Retainage may be withheld when satisfactory progress has not been achieved. It may not exceed 10% of the approved estimated amount, and contracting officers should not withhold without cause.	FAR 32.103

Statutes change. The 255.078 text above is the 2022 version, and we could not verify later amendments.

Other states are moving to cap retainage. California limits private-project retention to 5% for contracts entered after January 1, 2026 (Stoel Rives). New York set a 5% cap on private contracts effective December 19, 2025 (Peckar and Abramson). We found no Florida change for 2025 or 2026.

Check Your State

Do not treat the Florida rules above as the rules everywhere. Some states cap retainage, some set release deadlines, and many leave it to the contract. A construction attorney in your state can tell you what applies.

The Cash Math

What Retainage Really Costs You

Worked Example: A $500,000 JobRetainage at 10%: $50,000 held until the end.Net profit at 6.3% (the NAHB remodeler average): about $31,500.Retainage is about 1.6 times the profit on the job.If you carry $50,000 on a credit line at an example rate of 10% for four months, the interest alone is about $1,700.Illustration only. The 6.3% is a remodeler average. Your margin and your borrowing rate will differ.

Dr. Paul’s Insight

Retainage is a receivable, not a rumor. The contractors who handle it well do three things: they know the exact amount held on every job, they know the exact date it can be billed, and they chase the punch list like it is a payroll deadline. Pair this page with change orders, because extras that are never signed never reach the retainage list either.

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