If you’ve worked in the construction industry for any period of time, you’ve likely run into the payment term “Retainage”. Construction retainage is the agreed or statutorily required percentage of funds withheld from each payment earned by you. These funds will not be paid until your work is completed correctly. Intended to insure you fully meet all of your work and contractual requirements, these funds will mitigate the losses for the owner in the event you fail to do the work or meet your obligations. Several contractual requirements must be accomplished before your work is considered complete and retainage can be released.
punch list items
One of the first steps that must be accomplished for retainage funds to be released is completion of punch list items. Most construction projects require that you alert the owner or general contractor representative when your work is “substantially” complete. When you do, your work will be inspected and a list of work items that require improvement or completion is created. The items on this “punch list” must be completed for your work to receive final approval for purpose of releasing retainage. This step may be repeated several times until the owner or general contractor representative agrees all work items are complete.
project documents
Next, all final project documents required in your contract related to your work must be turned over to the owner or general contractor. These documents often include final field drawings, equipment operation manuals, material specifications and safety data sheets, warranty and guarantee documents or other documents. Anything specified in the contract or necessary to transfer ownership of the work to your client. These documents should be compiled as your work proceeds to avoid delays at the end of your work. If done correctly, it can also assist you in receiving your construction retainage payment.
final invoice
A proper invoice will also need to be provided which reflects the final payment due. Plus, retainage amount to be released. Your final invoice will often need to include additional documents that certify your work is complete. Most construction projects will require you sign and notarize a final mechanics “lien release” affidavit along with your final invoice. This document requires you to state that all of your vendors and subcontractors for the project have been paid for all goods and services provided. Or, will be paid from the final invoice funds, thereby extinguishing the possibility any mechanic liens will be filed against the project property.
The final release
It is important to distinguish the final mechanics lien release affidavit from other mechanics lien releases you execute during performance of the work. The final release requires you not only release the owner from all liability for mechanic lien or bond claims, but that you also must indemnify owner from any such claims that might otherwise arise. This means that if any lien claims do arise, you will be required to defend the owner from the claim, provide a bond to secure the claim, and possibly pay it. This is why it is so important to make sure your final invoice is accurate and includes all outstanding amounts owed.
know everything at the beginning of the project
Your contract for the work may include other project specific requirements be accomplished prior to releasing your retainage funds. It may also have longer payment terms than the other invoice payments you receive (30 days to pay for invoices, 90 days to pay retainage). It’s important you know everything at the beginning of the project that you will be required to do, in order to receive your retention payment. Failing to plan ahead can result in the steps listed to drag on for a long time. Which will prevent you from receiving the money you’ve earned.
Frequently Asked Questions
What is construction retainage?
Construction retainage (also called 'retention' or 'holdback') is the portion of a contractor's, subcontractor's, or supplier's payment that the upstream payor (owner, GC, or first-tier sub) withholds until project completion to ensure satisfactory performance. Standard retainage is 5-10% of each progress payment. Retainage is released — typically in a lump sum — after the project is substantially complete and all punch-list items are addressed. Unpaid retainage is one of the most common construction-payment disputes.
How much retainage can be withheld?
Most state prompt payment statutes cap retainage at 10% for private projects and 5-10% for public works. Examples: California Cal. Civ. Code § 8800 caps private retainage at 5% (with some exceptions); Florida Fla. Stat. § 255.078 caps public retainage at 10%; New York Gen. Bus. Law § 756 caps retainage at 5%; Illinois 30 ILCS 540/3 caps state public retainage. Some statutes require reduction of retainage as the project progresses (e.g., from 10% to 5% after 50% completion). Verify state-specific caps with construction-payment counsel.
When must retainage be released?
Most state prompt payment statutes require retainage release within a specific window after project completion or acceptance — typically 30-60 days. Examples: California Cal. Civ. Code § 8812 requires private retainage release within 45 days of completion; Florida Fla. Stat. § 255.077 requires public retainage release within 70 days of completion; New York Gen. Bus. Law § 756-a requires release within 45 days. Late retainage release triggers statutory penalty interest plus attorney's fees in most states. The release deadlines run from completion or acceptance — verify the project's official completion date.
Can I file a mechanics lien for unpaid retainage?
Yes — mechanics liens cover all unpaid amounts, including retainage. The lien deadline typically runs from LAST furnishing of labor or materials, which means retainage filing deadlines start from the project's substantial completion date (not from the date retainage was supposed to be released). Many contractors miss mechanics lien deadlines on retainage because they wait too long for the upstream payor to release retainage voluntarily. Practical recommendation: file the mechanics lien for retainage by the statutory deadline regardless of pending release negotiations.
What is the difference between retainage and a holdback?
The terms are used interchangeably in most contexts. RETAINAGE / RETENTION: standard contract term for the percentage of each progress payment withheld until completion. HOLDBACK: same concept, more common in Canadian construction law and some U.S. residential contexts. Both refer to a percentage of contract value withheld as performance security. Some contracts use 'retainage' for the percentage of each progress payment and 'holdback' for additional amounts withheld for specific issues (back charges, disputed work, etc.) — but the terms are not consistently distinguished.
What happens if the owner refuses to release retainage?
If the owner refuses to release retainage after the statutory release deadline, the contractor has multiple remedies: (1) file a mechanics lien for the unpaid retainage by the statutory lien deadline; (2) demand prompt payment statutory penalty interest (1-2% per month in most states); (3) demand attorney's fees under state fee-shifting provisions; (4) file a breach of contract action for the unpaid retainage. The combined remedies typically produce retainage release at settlement — the lien creates the security, the prompt payment penalties create economic pressure, the fee-shifting reduces litigation cost.
How does National Lien & Bond help recover unpaid retainage?
National Lien & Bond pursues unpaid retainage recovery for unpaid contractors, subcontractors, and suppliers as part of a complete construction-payment recovery strategy. For Illinois-based engagements, Hal Emalfarb's firm at Emalfarb Swan and Bain handles strategic coordination. For 50-state coverage, NLB's network attorneys handle mechanics lien filing for unpaid retainage, prompt payment statute enforcement, fee-shifting under state law, and direct contract claims as integrated remedies. The combination of lien leverage + prompt payment penalties + fee-shifting frequently produces retainage release at settlement. Contact NLB for a free initial consultation.