What is retainage in construction and how does it work?
Last reviewed July 5, 2026
Retainage is a percentage of a contractor's payment withheld until project completion to ensure work quality. Typically, 5% to 10% is held back. Once the project passes inspection and the punch list is completed, the retainage is released to the contractor.
Key points
- A percentage of payment held back until project completion.
- Commonly 5% to 10% of the contract amount.
- Protects the owner by ensuring quality work and completion.
- Release occurs after final inspection and resolving punch list items.
Retainage serves as a safeguard for the owner to make sure the project is finished correctly. It incentivizes contractors to complete any outstanding work and address issues that arise during final inspections. Each state has its own rules regarding retainage, so check local regulations for specifics.
How Alloovium helps
Alloovium can track retainage amounts and deadlines, helping you manage payments and compliance.
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General information for US construction professionals — not legal advice. Lien deadlines, retainage caps and notice rules vary by state; verify with the state statute or a construction attorney.