Retainage, Explained: What It Costs You and How to Get It Back

Retainage (retention, in some regions) is a percentage of each payment the party above you holds back until the work is complete and accepted. Five or ten percent is typical. On a $400,000 year that is twenty to forty thousand dollars of your money sitting in somebody else's account, and the uncomfortable part is how many subs cannot say what the balance is without adding it up by hand.

How it is actually calculated

On an AIA-style application for payment, retainage is not one number applied to the bottom line. It is computed in two separate places, and conflating them is the single most common billing error in progress billing:

• Retainage on completed work: a percentage of the value of work actually put in place this period and previously.
• Retainage on stored material: a percentage of material delivered and stored but not yet installed, which is frequently a different rate, and on many contracts is zero.

If you apply one blended rate to the total, your application is wrong by exactly the retainage on the stored balance. It is a small error every month and it compounds, and it is the kind of thing that gets an application kicked back.

The other classic error

On the standard form, the "less previous payments" line is the previous application's total earned less retainage, not the cash you actually received. Those two numbers diverge the moment a payment is late, which is most of the time.

Using cash received instead means you under-bill by the amount outstanding, every single month that anybody pays you slowly, and it compounds silently because each application inherits the last one's error. Read the line from the previous application, not from the bank.

Getting it back

1. 1
   Know the number, per job, at all timesRetainage held should be a column on your receivables list, not something you compute when you think of it. If you cannot see it, you will not chase it.
2. 2
   Know the release conditionRead the contract when you sign it, not when you want the money. Substantial completion, final completion, punch list sign-off, closeout documents received. The trigger varies and it is almost never "the job feels done".
3. 3
   Close out early and deliberatelyMost retainage is late because a closeout package is incomplete: warranties, as-builts, lien waivers, final unconditional releases. Assemble it the week you finish, not the month somebody asks.
4. 4
   Bill for it explicitlyRetainage release is usually its own application or its own invoice. Waiting for it to arrive on its own is waiting.
5. 5
   Know your state's rulesMany states cap the percentage, require it to be released within a set window after substantial completion, or require it to be held in a separate account on public work. Several prohibit withholding retainage on the retainage portion of a sub's billing. These are real leverage and they are free to invoke.

Lien rights are the backstop, and they expire

Retainage can outlive your lien deadline, which in most jurisdictions runs from your last day of work rather than from when payment was due. That means you can be perfectly patient, perfectly polite, and perfectly unsecured by the time you decide to get firm. Track the deadline alongside the balance and get advice before it passes, not after.

The pattern worth spotting

Look at retainage held by customer rather than by job. Almost every sub has one builder holding a disproportionate share, usually because the closeout process on their jobs is worse. That is a conversation to have with that builder specifically, and it is a much more productive one than a general complaint about slow payment.

Written by the team at Opulence Built, who also run an insulation and concrete contracting business. We mention our own software where it is relevant and say so when we do.