Retainage

Retainage is a percentage of each progress payment — commonly 5% to 10% — that the owner withholds from the contractor (and the contractor typically withholds from subcontractors) until the project is substantially complete. Its purpose is leverage: the held-back money gives everyone an incentive to finish punch-list work and correct deficiencies, and it protects the owner if a contractor defaults partway through. Retainage appears as a line on every payment application (it is broken out explicitly on AIA G702/G703 forms) and accumulates over the life of the job, so it can represent most or all of a contractor's profit until release. Many states cap retainage percentages or mandate release timelines, and tracking retainage receivable accurately is a core function of construction accounting.

Related term: AIA G702/G703 billing