What is a retainage in construction contracts?

Retainage in construction contracts refers specifically to a percentage of payment that is held back by the owner or general contractor until the project is fully completed. This practice is intended to ensure that the work is satisfactorily finished and to provide an incentive for the subcontractors and suppliers to address any deficiencies or outstanding issues. Retainage protects the owner from the risk of non-completion or defects in the work, as it encourages contractors to complete their contracted work properly and within the agreed timeframe.

In most cases, retainage is commonly set at a certain percentage, often around 5-10%, of the total contract value. This amount is only released once all contractual obligations have been met and the project has been formally accepted by the owner. Such practices are standard in the construction industry to help ensure that funds are held accountable until a satisfactory project completion is confirmed.