What Is Retention in a Construction Contract?

Retention, also called retainage, is the slice of each progress payment, commonly five to ten percent, that the owner withholds from the contractor, and the contractor in turn withholds from subcontractors, until the project reaches completion. It exists to keep everyone motivated to finish the work and fix punch list items.

California regulates when retention must be released. On private works, the owner generally must release retention within 45 days after completion, and a direct contractor must pass a subcontractor's share down within 10 days of receiving it. Public works follow their own timelines. If a good faith dispute exists, the withholding party may keep up to 150 percent of the disputed amount but must release the rest. Wrongfully withheld retention accrues a statutory penalty of two percent per month plus attorney's fees, which changes the economics of sitting on the money.

Retention fights are among the most common construction disputes we see, often stacked on top of change order and delay claims at the end of a project. The prompt payment penalties give unpaid contractors real leverage once the statutory clocks run.

What Retention Is For

Retention, also called retainage, is a percentage of each progress payment withheld until the work is complete and accepted. Five to ten percent is typical. Its stated purpose is to give the paying party security that the contractor will finish, correct punch list items, and deliver required closeout documents such as warranties and lien releases.

Because retention accumulates across the whole project, it is frequently the largest single amount in dispute at the end of a job, and it is withheld precisely when the contractor's remaining leverage is lowest.

Release Deadlines and Penalties

California regulates retention release by statute and attaches real consequences to late payment. On private works, an owner generally must release retention within a set period after completion, and a direct contractor must generally pass the corresponding retention down to subcontractors within a short window after receiving it. Public works have their own parallel scheme.

Where retention is wrongfully withheld, the statutes generally provide for a penalty of two percent per month on the improperly withheld amount, plus attorney fees to the prevailing party. That fee provision changes the economics of these disputes considerably, and it runs in both directions.

Good Faith Disputes and How Retention Fights Are Won

The statutory penalties generally do not apply where there is a good faith dispute over the amount owed, but California law limits how much can be withheld on that basis, and a party that withholds the entire retention over a small disputed item is exposed.

These disputes are won on documentation: signed change orders, dated punch list correspondence, photographs of completed work, and proof that closeout documents were actually delivered. A contractor who cannot show delivery of required lien releases will usually not recover retention regardless of the quality of the work.