Retainage in Construction: How It Works & How to Track It

Retainage is money you've earned but can't collect yet. On a typical 10% retainage contract, a subcontractor who's billed $500,000 in completed work has had $50,000 withheld — not because anything went wrong, but because that's what the contract says. That amount grows with every pay application and sits in someone else's account until the project is done and the release conditions are met.

For subcontractors running multiple jobs, withheld retainage adds up quickly. Understanding how it accrues, when it releases, and how to keep track of it across projects is basic cash flow management — not optional paperwork.

What is retainage in construction?

Retainage — also called retention — is a contractual holdback. Each billing period, the owner or GC withholds a percentage of the payment you'd otherwise receive and holds it until the project is complete. The intent is to keep a pool of money at stake, giving the owner or GC leverage to ensure the work gets finished and punch list items get resolved.

Retainage provisions are set in the contract. On subcontracts, the rate usually flows down from the prime contract — if the GC holds 10% from the owner, expect that same rate on your subcontract. The terms can differ, but they rarely improve as they pass down the chain.

If you're still getting your bearings on how pay applications and retainage fit together, the AIA pay application guide covers the full billing structure — the G702/G703 forms that most GCs use as the basis for progress billing both show retainage as part of the payment summary.

How retainage is calculated

Retainage is a percentage of the total earned in each billing period. The payment summary on an AIA-style pay application applies it this way:

• Gross amount billed — work completed plus materials stored for the period.
• Retainage withheld — the gross amount multiplied by the retainage rate.
• Amount due — gross amount minus retainage withheld.

At 10% retainage on a $100,000 billing: $10,000 is withheld and $90,000 is due. That $10,000 is added to a running balance. Three pay apps at $100,000 each means $30,000 held back — money you've earned, sitting in someone else's account.

Retainage rates and step-down provisions

10% is the default on most private commercial construction contracts, but two variations are common:

• Step-down clauses. Some contracts reduce the retainage rate — often from 10% to 5% — once the project reaches a specified completion percentage (50% is common). This improves cash flow in the back half of a job when you're usually the most cash-squeezed. It's worth negotiating if it isn't already in the subcontract.
• Public projects. Many states cap retainage on public works contracts at 5% or lower. A few states have further reduced rates for certain project types. If you work on public projects, check the applicable state statute — the contract rate isn't always the legal ceiling.

When is retainage released?

Release timing is set by the contract — it doesn't happen automatically when your scope is done. The most common trigger is substantial completion of the entire project, meaning you may wait months after finishing your portion while the GC wraps up other scopes. Common release triggers include:

• Substantial completion of the project
• Final completion and punch list sign-off
• A specified number of days after final completion
• Owner's receipt of lien waivers from all subs

Some subcontracts include sub-specific completion provisions: your retainage releases when your scope is substantially complete, regardless of the rest of the project. That's a meaningful improvement worth pushing for, especially on large or long projects where you finish well before the overall job closes out.

Pay-when-paid retainage clauses

Many subcontracts tie retainage release to the GC first receiving funds from the owner. Even if the GC agrees your work is done and the money is owed, your payment waits until the owner pays the GC. "Pay-when-paid" and "pay-if-paid" provisions differ in what they mean legally, and their enforceability varies by state — some treat them as unenforceable conditional payment obligations, others allow them. Knowing what your contract says and what the law allows in the project's state matters before you sign.

Retainage and cash flow

Because retainage accumulates across every pay app, a long project ties up a significant amount of your cash. On a $1 million subcontract at 10% retainage, $100,000 is withheld by the time you're done. Running three projects like that concurrently means up to $300,000 withheld — all earned, none yet collectible.

This is why tracking retainage per project matters for forecasting. Total billed and total collectible are different numbers for any active job. The gap is the retainage balance — it's a real receivable, but only after the release conditions are met.

Keep your change orders approved and incorporated into the contract sum as well. Each approved change order increases the contract sum, which means the retainage pool grows with it. A change order left unapproved means you're either under-billing or billing without a basis.

The schedule of values is what ties all of this together — it's the line-by-line breakdown that your pay applications bill against, and keeping it current (including change orders) keeps your retainage math accurate.

Tracking retainage in BuildWorkPro

BuildWorkPro's pay applications use AIA-style progress billing: each pay app has a schedule of values, and you report work completed and materials stored per line each period. When you create a pay application, you set the retainage percentage — it defaults to 10%, but you can adjust it per pay app for step-down provisions or contracts with different rates. The payment summary shows the retainage amount withheld for the period alongside the amount due:

Practical notes on managing retainage

• Read the retainage provision before you sign. Know the rate, what triggers release, and whether a pay-when-paid clause applies. These terms are negotiable before signing, and very hard to change after.
• Track withheld amounts per project. Each job's retainage is a receivable — factor it into your cash flow forecast, not just your billed totals.
• Negotiate step-downs and sub-specific release triggers. A GC with whom you have a track record is more likely to agree to these than a new relationship.
• Know your closeout requirements. When retainage releases, the GC typically needs a final pay application, conditional lien waiver, and sometimes a closeout certificate. Know what they need early so you're not the holdout when the project closes.