Ever found yourself thinking, “It’s my retainage, and I want it now!” like a contractor echoing J.G. Wentworth’s famous jingle? For contractors and subcontractors, that withheld chunk of cash—typically 5-10% of your pay—can feel locked away until the project’s done. For owners and general contractors, retainage is a critical tool to ensure work is completed to standard before funds are released.
Retainage (also called retention) is a predetermined amount of a contract progress payment withheld from a contractor’s (or subcontractor’s) invoice for work performed or materials furnished.[1] Its purpose is generally twofold: to motivate contractors to complete projects without sacrificing quality, while also protecting the owner from unnecessary liens, delays, or defects.
This article explores some of the basic essentials regarding retainage in private construction contracts: how much can be withheld, when you’re entitled to payment, what happens if you leave a project early, and key contract provisions to note. While not an exhaustive legal guide, this overview aims to help owners, contractors, and subcontractors navigate retainage fairly and effectively. Additionally, this article focuses on retainage in the context of private contracts, as public contracts have separate statutory requirements for amounts to be withheld and preconditions for the release of funds.
Retainage – What Amount is Being Withheld?
The amount of retainage that will be withheld is determined by the construction contract. However, some state statutes will specify an acceptable range as a percentage of the contract amount. In states that define the allowable percentage that may be withheld from progress payments, the prevailing range is 5-10% of the contract amount or progress payment. [2] Other states either do not mention retainage or specifically allow for private parties to contract freely.
The following examples show how different states treat retainage. Nevada law provides that an owner may withhold from any payment to be made to the prime contractor “a retention amount that, if the owner is authorized to withhold a retention amount pursuant to the agreement, must not exceed 5 percent of the amount of the payment to be made.”[3] North Dakota law allows up to 10% retainage until the project is 50% complete, then no more can be withheld. In Illinois, retainage is capped at 10% until the job is 50% complete, then drops to 5%.[4]
These reductions of retainage during the project can also be negotiated in private contracts, even where not required by state law. For example, § 9.2.4.1 in ConsensusDocs 200 codifies this approach: after the work is 50% complete, the owner withholds no additional retainage and pays the contractor the full amount due on subsequent progress payments.
In states with statutory provisions that set the allowable retainage amounts, exceeding these provisions can be costly. For example, in Alabama, if a contractor withholds a percentage of retainage from a subcontractor that exceeds what the owner is withholding from the contractor, then the contractor will be required to pay an interest of one percent per month on the excess amount.[5] Thus, if an owner decides to withhold only 5% as retainage, even though the state allows for up to 10% to be withheld, the contractor generally may only retain 5% from its subcontractor.
However, many states do not have a statute that specifies a retainage amount for private contracts. Instead, states will allow owners and contractors to freely negotiate retainage.[6] Regardless, contractors should confirm that the retainage amount set forth in the contract complies with the relevant statute.
What Does ConsensusDocs Say About Retainage?
Both ConsensusDocs 200 (Owner-Constructor Lump Sum Agreement) and ConsensusDocs 750 (Constructor-Subcontractor Lump Sum Agreement) address retainage in a coordinated manner.
9.2.4 in ConsensusDocs 200 provides that “Owner may retain ___ percent (%) of the amount otherwise due” from each progress payment before Substantial Completion, provided the percentage doesn’t exceed what’s allowed by law. Similarly, § 8.2.2 in ConsensusDocs 750 creates a flow-through provision stating, “The rate of retainage shall be ___ percent (%), which is equal to the percentage retained from Constructor’s payment by Owner for the Subcontract Work.” This ensures subcontractors are not subjected to higher retainage rates than what the owner withheld from the general contractor.
Timing – When Am I Entitled to Payment?
Having established how ConsensusDocs coordinates retainage amounts, the next critical question for contractors and subcontractors is timing—when are retained funds actually released? The time in which retained funds are released varies between state statutes, contract terms, and specified project milestones. Generally, retainage is released after “substantial completion” of the work, although the definition of substantial completion can vary. ConsensusDocs forms define this clearly: Substantial Completion occurs when “the Work is sufficiently complete in accordance with the Contract Documents so that Owner may occupy or utilize the Project…for the use for which it is intended, without unapproved disruption.”[7]
Both forms tie retainage release to Substantial Completion, with ConsensusDocs 200 requiring the owner to pay remaining retainage “less a sum equal to one hundred fifty percent (150%) of the estimated cost of completing or correcting remaining items.”[8] However, this is just the first stage of retainage release—final payment occurs later when all work and documentation is complete.
State statutes often set deadlines for releasing retainage. For example, in California, an owner has 45 days from when the work is “completed” to release all retained funds to a contractor.[9] “Completion” can mean actual completion, owner occupation after labor has stopped, or after a period (30 or 60 days, depending on conditions) in which labor has ceased.[10] A contractor must then release retained funds to subcontractors within 10 days of receiving such payment from the owner.[11] As another example, Connecticut requires retainage to be released within 30 days after issuance of certificate of final completion or acceptance by the owner.[12]
Contractual Timing Provisions – Pay-When-Paid and Pay-If-Paid
Beyond statutory requirements, contractual provisions can significantly impact when retainage is released. Subcontractors should be particularly aware of “pay-when-paid” and “pay-if-paid” provisions. These clauses can also affect when you receive retainage. A “pay-when-paid” provision typically means the subcontractor gets paid within a reasonable time after the general contractor is paid by the owner. A “pay-if-paid” provision is more restrictive—it means the subcontractor only gets paid if the general contractor actually receives payment from the owner.
ConsensusDocs 750 includes pay-when-paid language, stating that progress payments shall be made “no later than seven (7) Days after receipt by Constructor of payment from Owner for the Subcontract Work.” However, it also provides that if the constructor doesn’t receive payment from the owner “through no fault of Subcontractor, Constructor will make payment to Subcontractor within a reasonable time.”[13] This means subcontractors aren’t left empty-handed if the owner has payment problems that aren’t the subcontractor’s fault.
However, parties should be aware that some states hold “pay-if-paid” or both “pay-if-paid” and “pay-when-paid” clauses to be unenforceable as a matter of public policy. [14] In these states, payment by the owner to the contractor cannot be a condition precedent for a contractor to pay a subcontractor.
outh Carolina case, J&H Grading & Paving, Inc. v. Clayton Constr. Co., demonstrates this point. The signed subcontract provided for the subcontractor to receive its final payment no later than seven days after the contractor received payment from the owner.[15] The subcontractor completed its scope of work and requested its final payment of the retainage and outstanding balance, but the contractor refused to pay until it received payment from the owner. The court held the provision to be unenforceable, as state statute expressly prohibited payment clauses that created an owner’s payment as a condition precedent, thus the contractor was required to pay the subcontractor without depending on first receiving payment from the owner.
Leaving a Project Early – What Happens to Earned Retainage?
When a contractor or subcontractor leaves a project before completion—whether voluntarily or through termination—the fate of retainage depends largely on the contract language. A key question is whether the contract ties retainage release to full project completion or allows for payment based on work completed.
The Texas case Nu-Build & Assocs. v. Sooners Grp., L.P. illustrates this issue. When the owner terminated the contractor before project completion, the court held that the contractor was not entitled to retainage because the contract stated that the contractor was only entitled to final payment (including retainage) when the contract had “fully performed the Contract” and “a final Certificate for Payment has been issued by the Architect.”[16] The court further found that there was credible evidence that Nu-Build had not completed significant portions of the work, and that the contractor had otherwise likely been compensated for the work it actually performed. The court found that without full and proper performance of the work, no retainage was due, regardless of whether the termination was the contractor’s fault.
Alternative to Cash Retainage
While contract language typically governs retainage in termination scenarios, parties also have options to address cash flow concerns during active projects through substitute security arrangements.
Some states allow contractors to substitute securities for cash retainage. In Missouri, contractors can post a retainage bond, certificate of deposit, or letter of credit instead of having cash withheld. Tennessee and Kansas also allow this for private projects. The upside is improved cash flow during the project, and contractors get any interest earned on the security. The downside is that bonds cost money, and owners aren’t required to accept substitute security.
Both ConsensusDocs 200 and 750 accommodate substitute security. ConsensusDocs 200 allows contractors to “furnish a retention bond or other security interest acceptable to Owner,” while ConsensusDocs 750 provides the same option for subcontractors with constructor approval.[17] This creates a consistent approach throughout the project hierarchy.
Conclusion
Retainage doesn’t have to be a source of frustration if you understand the rules and plan accordingly. Whether you’re shouting, “It’s my retainage, and I want it now!” or you’re the one holding the purse strings, clear contract terms are essential, as is understanding the laws governing the project.
Key points to remember:
- Review the relevant state statutes for your project location
- Retainage rates typically range from 5-10%, with many states allowing parties to negotiate freely
- Payment timing usually follows substantial completion, but varies by state and contract
- Some states require retainage reduction during construction (often at 50% completion)
- Be aware of pay-when-paid and pay-if-paid provisions in your contracts and their enforceability
- Consider substitute security options where available
- Contract language typically determines what happens to retainage if a contractor abandons a project before completing its work or is terminated
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The views expressed in this article are not necessarily those of ConsensusDocs. Readers should not take or refrain from taking any action based on any information without first seeking legal advice.
[1] Tex. Prop. Code § 53.001(11).
[2] See Nev. Rev. Stat. § 624.609(2)(a) (Nevada) and ND Cent. Code § 43-07-23 (North Dakota).
[3] Nev. Rev. Stat. § 624.609(2)(a).
[4] 815 ILCS 603/20.
[5] Ala. Code § 8-29-3(f) (LexisNexis 2025).
[6] See Del. Code. Ann. tit. 6, § 3506(d).
[7] ConsensusDocs® 200 – Standard Agreement and General Conditions Between Owner and Constructor – © 2016, Section 2.4.24, Revised October 2021.
[8] ConsensusDocs® 200 – Standard Agreement and General Conditions Between Owner and Constructor – © 2016, Section 9.6.4, Revised October 2021.
[9] Cal. Civ. Code § 8812 (Deering 2024).
[10] Cal. Civ. Code § 8180(a) (Deering 2024).
[11] Cal. Civ. Code. § 8814 (Deering 2024).
[12] Conn. Gen. Stat. § 42-158k (2025).
[13] ConsensusDocs® 750 – Standard Agreement Between Constructor and Subcontractor – © 2011, Section 8.2.5, Revised October 2018.
[14] See S.C. Code Ann. § 29-6-230 (2000) and N.C. Gen. Stat. § 22C-2 (2025)
[15] J&H Grading & Paving, Inc. v. Clayton Constr. Co., 892 S.E.2d 558 (S.C. Ct. App. 2023)
[16] Nu-Build & Assocs. v. Sooners Grp., L.P., 2018 Tex. App. LEXIS 4091 (5th Ct. App., 2018)
[17] ConsensusDocs® 200 – Standard Agreement and General Conditions Between Owner and Constructor – © 2016, Section 9.2.4.1, Revised October 2021; ConsensusDocs® 750 – Standard Agreement Between Constructor and Subcontractor – © 2011, Section 9.3.2, Revised October 2018.