Retainage
What is Retainage?
Retainage is a percentage of each progress payment that an owner or general contractor withholds and does not pay out until the job is finished and accepted. Its purpose is leverage: the held-back money is the customer's assurance that punch-list items get completed and the work passes final acceptance before the last dollars are released. The percentage, the milestone at which it is reduced, and the conditions for release are set by the contract and, in many jurisdictions, regulated by statute. For the contractor it means a slice of the revenue on every draw is earned but uncollected, sometimes for months after the crew has left the site.
Retainage is not a discount or a dispute. It is a loan to the customer, one draw at a time: the work is done, the invoice is approved, and part of it stays on the other side of the table until closeout. On a long commercial job that part can add up to more cash than the business has in the bank, which is why contractors bidding draw-billed work model retainage separately from their net-30 payment terms rather than lumping both into one “slow pay” assumption.
How much can be held, and for how long, is set by contract and jurisdiction. On federal fixed-price construction contracts, FAR 52.232-5 lets the contracting officer retain a maximum of 10 percent of a payment — and only where progress is not satisfactory, releasing the withheld funds once it is. Private and state-regulated work follows its own rules; read the clause before pricing the job.
In practice the holdback shows up as a negative deduction line so the draw nets out. Build the draw with the contractor invoice template, price the original scope in the construction estimate template, and bill added work through a change order so the holdback applies to the right contract sum.