Retainage

Retainage provides leverage ensuring project completion. By withholding 5-10% of each payment, owners maintain financial motivation for contractors to: complete all work, fix deficiencies, address punch list items, and return for warranty issues. On a $100,000 project with 10% retainage, $10,000 is held until final acceptance. This incentive prevents contractors from abandoning projects at 95% completion when final tasks are time-consuming and unprofitable. Retainage releases after final walkthrough acceptance and punch list completion.

How to Use Retainage Effectively

Include retainage terms in your contract: percentage withheld (10% is standard), when it releases (after final acceptance), and timeline for addressing punch list items (typically 30 days). Calculate retainage on each progress payment—if paying $25,000, retain $2,500 (10%). Don't release retainage until: all work is complete per contract, punch list items are finished, you've conducted final walkthrough, all required inspections passed, and unconditional lien waivers collected. Retainage is your final leverage—once released, motivating contractors to return becomes difficult.

Retainage Best Practices

• Standard retainage: 10% for smaller projects, 5% for large projects
• Calculate on each payment: Retain percentage from every progress payment
• Document withholding: Show retainage clearly on payment records
• Release conditions: Complete work, passed inspections, punch list done, lien waivers collected
• Timeline: Release within agreed period after conditions met (typically 10-30 days)
• Never release early: Retainage is your only remaining leverage for completion