What is retainage (holdback)?

Retainage is a percentage of each progress payment that the owner or contractor holds back until the work is complete, to protect against unfinished work and unpaid subcontractors. In Canada the same idea is usually called holdback, and provincial lien laws commonly require it.

How it works

On each payment, a set percentage of the amount earned is withheld. The withheld amounts build up over the job and are released at the end, once the conditions in the contract or the law are met.

  • United States: retainage is mainly set by the contract, often 5% or 10%. Some states and many public contracts limit the rate or set when it must be released.
  • Canada: holdback is mostly statutory. Provincial lien legislation commonly requires 10% to be held back and released only after the lien period has passed. The rules and timelines differ by province, so check the local act.

Worked example

A $500,000 contract with 10% retainage:

DrawWork this periodRetainage (10%)Payment
1$80,000$8,000$72,000
2$120,000$12,000$108,000
To date$200,000$20,000$180,000

The contractor has earned $200,000 but been paid $180,000. The $20,000 is still owed and is released at the end of the job.

Common mistakes

  • Not tracking retainage receivable. It is money owed to you and is easy to forget once the crew leaves.
  • Applying it unevenly to change orders. Hold back on approved changes the same way as base work, unless the contract says otherwise.
  • Releasing it too early. In Canada, paying holdback before the lien period ends can leave the payer exposed to liens.
  • Forgetting your own subs. A general contractor usually holds back from subcontractors as well.

Related terms

  • Draw request: A draw request is a request to be paid for construction work completed during a period, sent to a construction lender or to the project owner.
  • Schedule of values (SOV): A schedule of values (SOV) is a breakdown of a construction contract or loan budget into line items, each with a dollar value, that together add up to the contract sum.
  • Lien waiver (statutory declaration): A lien waiver is a document in which a contractor, subcontractor or supplier gives up its right to file a lien on a property for amounts it has been paid.

Further reading