Retainage

What is retainage in construction?

Retainage is a percentage of each progress payment withheld by the customer or general contractor until the project is substantially or fully complete, typically 5–10%.

Retainage exists to give the paying party leverage to ensure the work is finished correctly before releasing the full contract amount. How it typically works:

1. 1.Each progress payment is reduced by an agreed percentage (commonly 5–10%)
2. 2.The withheld amount accumulates over the life of the project
3. 3.It's released, often in a final "retainage invoice," once the work is complete and approved

Retainage rates differ by project type: Clemson University research summarized by Billed found average retainage of about 7.59% on private projects, 5.56% on state projects, and 3.26% on federal projects.

BCTM lets you track the retainage amount withheld across progress invoices and generate a final invoice for the retained balance once the job wraps up.

How much retainage is normal on a construction contract?

Retainage of 5–10% per progress payment is typical, though the average varies by project type: roughly 7.59% on private projects, 5.56% on state projects, and 3.26% on federal projects.

(Sources: Levelset — Retainage in Construction; Clemson University data via Billed)

Some states also set statutory minimums or maximums for certain project types — for example, Texas requires a 10% minimum statutory retainage on private projects. Because retainage rules vary by state and by whether the project is public or private, confirm applicable limits before finalizing a contract.

How do I track retainage owed to me across jobs?

Track retainage as a separate outstanding balance per job in your reports or aging dashboard, so you can see the total withheld across all active and completed projects at a glance.

Retainage is easy to lose track of because it's technically "earned" but not yet invoiced or collected, and can sit outstanding for months across multiple jobs simultaneously. A useful tracking approach:

1. 1.Record the retainage percentage on each progress invoice as it's issued
2. 2.Keep a running total of retainage withheld per job
3. 3.Review outstanding retainage regularly, not just at project close, since it can represent a meaningful chunk of receivables sitting unpaid
4. 4.Flag jobs where retainage release is overdue relative to your contract terms

Rolling this into your regular accounts-receivable review, rather than treating it separately, helps avoid retainage becoming an invisible cash-flow gap.

BCTM's reports can show outstanding balances by job, including retainage withheld on progress invoices, so you can see what's owed across every active contract.

Can I invoice retainage separately once a job is complete?

Yes — once the job is finished and approved, you can issue a final invoice specifically for the withheld retainage amount.

A separate retainage invoice at project close makes the final payment easy to identify and track, rather than folding it into a general "final payment" invoice. Typical process:

1. 1.Confirm the job is complete and any final inspection or walkthrough is approved
2. 2.Total the retainage withheld across all progress invoices
3. 3.Issue a final invoice specifically labeled for the retainage balance
4. 4.Follow up if payment doesn't arrive promptly, since retainage release can sometimes lag even after work is accepted

Keeping this as a distinct invoice also makes it easier to reference in a dispute if the retainage release is delayed.

BCTM lets you generate a dedicated final invoice for retainage owed once a job is marked complete.

Is retainage legal in every state?

Retainage itself is legal broadly across the U.S., but the specific rules — maximum percentages, release timing, and whether it applies to public versus private projects — vary significantly by state, so verify your state's specific requirements.

Retainage as a practice isn't banned, but the details are far from uniform:

• Some states cap the maximum retainage percentage allowed on public projects
• Some states set statutory minimums (e.g., Texas requires a 10% minimum on private projects, per Levelset)
• Release timing requirements (how soon retainage must be paid after completion) differ by state
• Rules can differ for public versus private contracts within the same state

Because of this variability, don't assume a retainage clause that's standard in one state applies the same way elsewhere — check your state's specific statute or consult a construction attorney.