What is Retainage?
Definition of Retainage in Construction
The amount of money, based normally on a percentage, that is held from the payment of each bill or requisition.
This amount of money is held as a guarantee that the work will be 100% completed and within the specifications of the project. In many cases the retainage is set at 5% or 10 % of the entire invoice. The withholding of retainage is a common occurrence with most construction contracts. The contractor will only be paid 90% of the total invoice amount. This retainage is intended to guarantee that all the work paid for under the requisition, is being completed per the specifications and documents.
Contractors have lobbied politicians of several states to reduce the 10% retainage withheld to 5% and the period of time for this retainage to be held in an effort to produce a much more fair and reasonable consideration for payment to the contractors. The withholding of retainage has been a standard in the construction industry and the actual payment of this retainage is, in many parts of the country, never expected by contractors. What this has meant in the past, was that contractors never expected the full payment of their retainage and therefore simply bid the job at 110% of the actual value. Retainage has been a difficult concept for contractors and subcontractors. This concept is not accepted in other industries nor expected, however the concept of retainage is totally accepted within the construction industry especially by the side that does the paying.