Retainage

What is retainage?

Retainage is a share of each progress payment held back until the project is finished, often 5% to 10%. The owner withholds it from the general contractor, who usually withholds it from subcontractors in turn, and releases it at completion or at a set milestone. Federal construction rules cap it at 10 percent of the approved estimate, and states set their own limits.

Why it matters to a revenue leader

Retainage is earned revenue the company cannot collect yet, so it ties up cash and lengthens days sales outstanding on project work. Limits vary: New York lets local governments hold up to 5% when the contractor must provide a performance bond and a labor and material bond, and up to 10% otherwise. On thin-margin jobs the amount held back can rival the profit on the job. A revenue leader should care at two moments: when negotiating terms, since the percentage, any reduction at a milestone and the release conditions are commercial levers, and when forecasting cash, because slow closeout paperwork delays release.

A mechanical subcontractor bills $200,000 of progress on a project with 10% retainage. The general contractor pays $180,000 and holds $20,000. Across eight active projects, the company has $310,000 of retainage receivable waiting on closeout documents.