How to Calculate Retainage on a Progress Payment

Retainage is the portion of each progress payment the owner or general contractor holds back until the work is complete. It protects the payer against unfinished or defective work. For the contractor, it is earned money that will not arrive for months, so it needs to be tracked as carefully as any invoice.

The basic calculation

Retainage = retainage percentage × work completed to date. Many contracts apply the same percentage to stored materials, sometimes at a different rate. The percentage comes from your contract. Rates in the 5–10% range are common, and many states limit retainage on certain types of projects, so check both your contract and your state’s rules.

Worked example

• Work completed to date: $80,000
• Retainage at 10%: $8,000
• Earned less retainage: $72,000
• Previous payments: $50,000
• Current payment due: $22,000

Retainage reductions

Some contracts reduce the retainage rate after a milestone, often once the project is half complete. If yours does, make sure the pay application actually applies the reduced rate. It is easy to keep carrying the original percentage out of habit.

Getting retainage released

1. Know the release trigger in your contract, such as substantial completion, final completion, or owner acceptance.
2. Track the total retained on each project, so you know exactly what is owed when that trigger arrives.
3. Invoice for the release promptly. Retainage that is never billed is often never paid.

Retainage adds up quietly across projects. A contractor with several jobs running can easily have a large sum sitting in other people’s accounts. Knowing that total is the first step to collecting it.