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.