📘 What is Contractor Retainage?

Contractor retainage is the portion of a payment withheld from a contractor or subcontractor until a construction project or specific milestones are fully completed. It serves as a financial safeguard to ensure that all work meets agreed-upon standards.

Typically, retainage ranges from 5% to 10% of the total contract value and is released upon final inspection or after a designated period.

📌 When and Why It’s Used

Retainage is most commonly used in real estate development, renovation, and construction projects to protect property owners or developers from incomplete or substandard work. It creates a financial incentive for contractors to finish the job properly and on time.

It also provides leverage in case any defects or corrections are needed after substantial completion.

🧮 How It’s Calculated or Applied

Retainage is calculated as a fixed percentage of each progress payment or the total contract value. For example, if a contractor earns $100,000 and the retainage is 10%, $10,000 will be withheld until the final completion of the job.

Terms of retainage, including the release schedule and conditions, should be clearly outlined in the construction contract.

✅ Pros

• Helps ensure high-quality workmanship and completion
• Offers legal and financial protection for property owners
• Can encourage timely project delivery and accountability

⚠️ Cons

• May cause cash flow issues for contractors or subcontractors
• Can lead to disputes if retainage terms are unclear
• Delayed payments may strain contractor relationships