What is retainage in construction payment terms?

What is retainage in construction payment terms?

• A. A portion of payment withheld until project completion
• B. A late payment penalty
• C. A bonus for early completion
• D. A tax credit

Answer: (A)

Retainage is the holdback of a portion of payment from progress bills until the project is finished and all contract obligations are met. It acts as a financial guarantee that the work will be completed properly and that any issues, warranties, or lien claims can be resolved, and that subcontractors and suppliers will be paid. It’s not a late payment penalty, nor a bonus for finishing early, nor a tax credit. In practice, a contract might specify a percentage—often around 5–10%—to be withheld from each payment. For example, on a $1 million project with 10% retainage, $900,000 would be paid as progress payments while $100,000 is held back. The retained amount is released once the project reaches substantial completion and all conditions, such as lien waivers and final punch-list items, are satisfied, with possible staged releases if issues persist.

Retainage is the holdback of a portion of payment from progress bills until the project is finished and all contract obligations are met. It acts as a financial guarantee that the work will be completed properly and that any issues, warranties, or lien claims can be resolved, and that subcontractors and suppliers will be paid. It’s not a late payment penalty, nor a bonus for finishing early, nor a tax credit. In practice, a contract might specify a percentage—often around 5–10%—to be withheld from each payment. For example, on a $1 million project with 10% retainage, $900,000 would be paid as progress payments while $100,000 is held back. The retained amount is released once the project reaches substantial completion and all conditions, such as lien waivers and final punch-list items, are satisfied, with possible staged releases if issues persist.