Retainage is the part of each progress payment that the owner, or the contractor above you, holds back until the job or a phase of it is finished. It’s usually 5% to 10% of each payment. It protects the owner if work isn’t finished or fixed, and it’s money you’ve already earned. On a long job it can add up to more than your profit, so it needs its own place in your books and in your cash plan.
We see this on real jobs. A contractor wins work at a 7% or 8% margin while the owner holds 10% retainage until 90 to 120 days after the job ends. The retainage is bigger than the profit, so the company carries the job with its own cash from start to finish. Our post on cash flow vs profit walks through what that does to a company’s bank balance.
How retainage works on a pay application
On an AIA-style pay application, retainage has its own line. The AIA’s G702 form shows the retainage held on completed work and on stored materials, then the total earned less retainage, then the balance to finish including retainage.
Here’s a simple example. Say you have a $2,000,000 contract with 10% retainage, and by this month’s pay application you’ve completed $600,000 of work. The owner holds $60,000, so you’ve been paid, or are about to be paid, $540,000. Keep going to the end of the job and $200,000 is held back: money you’ve earned and can’t use until the owner releases it.
Retainage also flows down. If you’re a subcontractor, the general contractor usually holds retainage from you, and on many contracts you get yours only after the GC gets theirs. If you’re a GC, the retainage you hold from your subs is money you owe them.
The rules in New York, New Jersey and on federal jobs
How much can be held, and when it has to be paid, depends on the contract and the state.
| Where | How much can be held | When it’s due |
|---|---|---|
| New York private projects of $150,000 or more | 5% of the contract sum, and a sub can’t be held more than the owner holds | Within 30 days after final approval of the work, or interest of 1% a month |
| New Jersey private projects | No state cap; the contract sets it | Within 30 days after the billing date, once the work is accepted and the billing approved |
| Federal construction contracts | Up to 10%, and only when progress isn’t satisfactory | Promptly, once the contract is complete |
New York. General Business Law section 756-c caps retainage on private projects at 5%, for contracts signed on or after November 17, 2023. The law covers private projects of $150,000 or more, and it leaves out one to three family homes and residential projects of 4,500 square feet or less. Since December 19, 2025, a new law makes contract terms that require more than 5% void.
New Jersey. There’s no state cap on retainage for private work, so 5% to 10% is common. The Prompt Payment Act treats a request for release of retainage as a billing. Once your work is accepted, the owner pays it within 30 days after the billing date. The prime contractor then pays its subs within 10 days of getting the money, unless they agreed otherwise in writing.
Federal jobs. Under FAR 32.103, retainage can’t exceed 10% and “should not be used as a substitute for good contract management.” Retained amounts are paid promptly once the contract is complete.
Public projects in New York and New Jersey, and contracts in other states, follow their own rules, so read your contract’s payment section before the job starts. This is general information, not legal advice. If retainage is being held past its due date, talk to your construction attorney.
How to record retainage in your books
Keep retainage out of your regular receivables. Retainage your customers hold goes in its own account, retainage receivable, and retainage you hold from subs goes in retainage payable. Tie both to the job, so the aging report shows what’s held on each job and when it’s due. If retainage sits mixed into receivables, nobody notices when it’s 6 months old.
On your year-end financial statements, retainage that still depends on finishing the work is generally shown as a contract asset rather than a receivable under the revenue standard, ASC 606. It becomes a receivable once only the passage of time stands between you and payment, as a CFMA Building Profits article by Moss Adams explains. Your CPA decides the exact presentation. Your job is to give them clean balances by job.
How to get retainage released faster
Most slow retainage is a paperwork problem as much as an owner problem. Before the job and at closeout:
- Negotiate it before you sign. Ask for a lower percentage, a reduction once the job is half done, or release by phase. The AIA’s instructions for its A101 agreement say it endorses reducing retainage as rapidly as possible, and that most retainage is often released at substantial completion.
- Know your release trigger. Substantial completion, final completion and the owner’s final approval are different dates. Put the right one on your calendar for each job.
- Bill for the release. Send a written request for release of retainage as soon as you’re entitled to it. Don’t wait for the owner to remember.
- Finish closeout early. The punch list, lien waivers, warranties and the other closeout documents your contract lists are usually what stands between you and the check.
- Follow up on a schedule. Review retainage by job every month and chase it the week it’s due. The billing software company Siteline surveyed 492 construction finance and operations professionals in May 2026, and 43% of subcontractors said they waited more than 90 days to collect final payment and retainage.
Plan your cash around it
Put retainage into your 13-week cash flow forecast on the date you really expect it, not the date the contract says. When it comes in late, you’ll already have planned for it.
Watch the total, too. Retainage receivable that keeps growing on finished jobs is a warning sign. Your bank and surety notice it, and sureties discount receivables more than 90 days old, according to UHY. Old retainage can lower the working capital they count when they set your bonding capacity.
When holding retainage is fair
Retainage isn’t going away, and it isn’t always unfair. It gives the owner a reason to expect the punch list to get finished, and the retainage you hold from your own subs does the same for you. The fight worth having is over the percentage and the release date, not whether retainage exists. If you’re a GC, release your subs’ retainage on time as well. Your reputation with good subs is worth more than holding their money a few extra weeks.
How we help
When we build your monthly WIP schedule and cash forecast, retainage is part of the review. We look at what’s held on each job, what you’re holding from subs, what’s due and when it’s likely to come in. That way old retainage gets chased while it’s still easy to collect. See our cash management service and our work with subcontractors and general contractors.
FAQs
What is retainage in construction?
Money the owner or general contractor holds back from each progress payment, usually 5% to 10%, until the job or a phase of it is finished. It’s paid at the end, once the work is accepted.
What does 10% retainage mean?
The owner holds 10% of each approved payment. On a $500,000 pay application, you’re paid $450,000 and $50,000 is held until the retainage is released.
When should retainage be paid?
When your contract says, usually at substantial or final completion. On New York private projects of $150,000 or more, the owner has to release it within 30 days after final approval of the work.
Is there a limit on retainage in New Jersey?
Not on private projects, where the contract sets it. New Jersey’s Prompt Payment Act sets the timing instead: once the work is accepted, retainage is due within 30 days after the billing date.
Is retainage an asset?
Yes. Retainage you’re owed is an asset on your balance sheet. Whether it’s shown as a receivable or a contract asset depends on whether anything besides time stands between you and payment, so your CPA decides the presentation.
