Retainage (also called retention) is money earned but withheld from each payment as security that the contractor will finish the work and fix defects. Typical rates are 5% to 10%, sometimes reduced (for example to 5%) once the job is half complete. Owners hold retainage from the GC, and GCs usually hold the same or a higher rate from subcontractors. Many states cap retainage on public, and sometimes private, work, so check the contract and local law.
Why it matters
Retainage is real revenue sitting on someone else’s balance sheet. On thin-margin work it can exceed the entire profit on the job. It must be tracked separately in accounts receivable (retainage receivable) and accounts payable (retainage payable) so cash forecasts are honest.
Worked example
On Riverside Medical Center Pay App #9 (sample data), work completed this period is $2,310,400 (about $2.31M). At 10% retainage: $2,310,400 × 10% = $231,040 held back, so the current payment due before prior-payment adjustments is $2,310,400 − $231,040 = $2,079,360. The GC holds 10% from its subs on their share of that work, too.
Common mistakes
- Booking retainage as collected cash in forecasts.
- Not tracking retainage payable to subs, then being surprised at closeout.
- Missing the contractual trigger (substantial completion, a reduction at 50%) to bill retainage release.
How os.construction handles it
We’re building retainage as a tracked balance on both sides of every pay app, owner and sub, so receivable and payable retainage reconcile from the same billing record.