How to Bill Retainage on AIA Forms G702/G703
Retainage is one of the most common sources of pay application mistakes. If the numbers do not line up between line items, totals, stored materials, and payment due, reviewers notice fast. This guide covers how to calculate retainage, where it goes on the G703 and G702, how it carries forward each billing period, and how it gets released at the end of the job.
What Is Retainage?
Retainage is the portion of a contractor’s payment that is held back until later in the project. In construction billing, it is often 5% to 10% of the amount earned, although the actual percentage and rules depend on the contract.
Retainage usually shows up during construction progress billing and affects the amount currently due on each pay application. It also needs to stay aligned with the pay application, the continuation sheet, and the summary page.
The Basic Retainage Formula
The key question is not just the percentage. The key question is: what amount is subject to retainage under the contract?
- Some contracts apply retainage to completed work only
- Some apply it to completed work plus stored materials
- Some reduce or release retainage after a certain milestone
Before doing any math, confirm the retainage clause and make sure it matches how the pay app is being prepared.
Example: Retainage on a Progress Payment
Here is a simple example using one billing period.
- Contract value: $100,000
- Work completed this period: $20,000
- Retainage percentage: 10%
Retainage withheld = $20,000 × 10% = $2,000
Amount earned less retainage = $20,000 - $2,000 = $18,000
If there were no previous payments and no other deductions, the payment due for that period would be $18,000.
What Happens on the Next Pay App?
Assume the next month adds another $15,000 of completed work. Now total completed to date is $35,000.
Total retainage to date = $35,000 × 10% = $3,500
Total earned less retainage to date = $35,000 - $3,500 = $31,500
This is where many spreadsheet workflows go sideways. The current payment due has to account for prior billings, prior retainage, and the new totals to date without breaking the cumulative math.
How to Bill Retainage on the G703 and G702
Billing retainage is not a separate step — it happens inside the pay application, in specific places on each form. In AIA-style billing, retainage appears in more than one place, which is why errors are so easy to spot.
1) G703 Line Items
Retainage is often applied at the line-item level on the G703 continuation sheet. That means each row can contribute to the total retainage amount.
2) G702 Summary Totals
Those line-item values then roll up to the G702 summary, where retainage affects total earned less retainage and the current payment due.
3) Schedule of Values
The math also has to stay aligned with the schedule of values (SOV) because overbilling or bad row-level math creates downstream issues fast.
Billing it period by period: the three moves
1) This period’s retainage. Each application, retainage is withheld on the work you’re billing this period (plus stored materials, if the contract applies retainage to them):
Retainage this application = (Work completed this period + Materials billed) × retainage %
2) It accumulates on the G702. The retainage held on the G702 summary is cumulative — everything withheld across all applications to date, not just this month’s amount. That total reduces “Total Earned Less Retainage,” which is what drives Current Payment Due. The most common retainage error on rejected pay apps is recalculating this from scratch each month instead of carrying it forward — the pay app and the GC’s records quietly stop agreeing.
3) It releases at closeout. At substantial or final completion (per the contract), withheld retainage is billed back — typically on the final application, where the retainage held drops and Current Payment Due includes the released amount. On a clean final application, Balance to Finish reaches zero and the cumulative math ties out to the penny. This worked G702 example shows the period-to-period flow with real numbers, and the G702 calculator will check your retainage math before you submit.
Current retainage versus cumulative retainage
Current retainage is the amount withheld from this application. Cumulative retainage held is the opening retainage, plus amounts withheld on certified applications, less any retainage already released. The G703 line detail and G702 summary must tell that same story.
Retainage held now = Opening retainage + Prior retainage + Current retainage - Retainage released
Project rates, pay-app changes, and line-item exceptions
Many projects begin with one default retainage percentage, but the contract may require a different rate for a phase, SOV line, stored materials, or a later billing period. Document the reason for every exception and apply it consistently. A changed rate should affect the intended work only; it should not silently rewrite retainage already certified on earlier applications.
Worked example: partial retainage release
Assume $12,000 of retainage is held before the current application. The contract authorizes a $5,000 partial release, while $1,500 of new retainage is withheld on current work:
$12,000 + $1,500 - $5,000 = $8,500 retainage held after this application
The $5,000 release increases the amount requested without increasing completed work. Keep it visible as a release adjustment so reviewers can reconcile the new held balance to the prior application.
If you keep your books in QuickBooks Online, see how to record and release retainage in QuickBooks Online. Match the authorized release to the retained balance, and track the customer's payment separately.
Worked example: bringing prior retainage into PayAppPro
If $80,000 was billed before the first PayAppPro application and $8,000 is still withheld, enter that $8,000 as opening retainage. If the first new application withholds another $2,000 and releases nothing, cumulative retainage held becomes $10,000. Opening retainage is a carryforward balance, not new revenue and not an amount to add twice.
How PayAppPro handles the retainage lifecycle
PayAppPro keeps the important parts of the retainage position connected:
- Set a project retainage default and preserve line-level exceptions when the contract requires them
- Calculate retainage on current work and stored materials according to the selected treatment
- Carry opening and previously certified retainage into the cumulative amount held
- Release part or all of the retained amount without recasting completed-work values
- Track retainage paid separately from the normal pay-app payment
- Record the payment date, check or reference number, and notes with the release
- Show opening, prior, current, released, separately paid, and net-held amounts for review
Software does not decide what the contract permits. It applies the settings you choose and helps keep the G703 detail, G702 summary, and period-to-period history aligned.
Does Retainage Apply to Stored Materials?
Sometimes yes, sometimes no. The contract controls.
- Some projects apply retainage only to installed work
- Some apply retainage to installed work plus stored materials
- Some reduce retainage later in the project, but not on stored materials
If your backup shows stored materials but the retainage treatment does not match the contract, reviewers may reject the entire package even if the rest of the math is correct.
Retainage and Change Orders
Change orders complicate retainage because they affect the contract value and may change what is billable in the current period.
If the retainage percentage stays the same but the contract value changes, your cumulative totals still need to stay aligned. If the contract also changes how retainage is handled, the billing logic gets even more sensitive.
Common Retainage Mistakes That Get Pay Apps Rejected
- Applying retainage inconsistently from one billing period to the next
- Changing the retainage percentage mid-project without fixing cumulative math
- Applying retainage to stored materials when the contract does not allow it
- Failing to apply retainage to stored materials when the contract does require it
- Letting G702 summary totals drift away from G703 line-item totals
- Using spreadsheets that recast prior values incorrectly after a retainage change
- Forgetting to account for retainage when change orders are added
Why Retainage Errors Matter
Retainage errors usually do not stay isolated. One bad retainage number can affect:
- total earned less retainage
- current payment due
- stored materials treatment
- change order math
- review confidence in the whole package
That is why retainage is not just a math detail. It is a workflow detail tied directly to trust, review speed, and whether you get paid without rework.
Retainage Laws Can Vary by State
Even when the retainage math looks simple, the legal rules behind retainage are not always the same from one state to the next. Some states focus on percentage caps. Others focus on release timing, public-project treatment, or how retainage interacts with payment rights and notice rules.
That means a retainage workflow that worked on one project may not be safe to assume on another. If you work across multiple jurisdictions, it helps to understand that retainage can be both a billing issue and a legal-compliance issue.
California
Private-work limits, release timing, and stricter statutory treatment make California one of the most talked-about retainage states.
View California retainage laws →Texas
Texas retainage often gets discussed alongside owner-retainage concepts, notice issues, and broader payment-right implications.
View Texas retainage laws →Florida
Florida is especially important for public-project retainage limits, timing rules, and closeout-related payment treatment.
View Florida retainage laws →Retainage Billing FAQ
What is retainage in construction billing?
Retainage is the portion of a contractor’s payment that is withheld until later in the project, usually until substantial completion or final completion. It is commonly calculated as 5% to 10% of completed work, depending on the contract.
How do you calculate retainage?
The basic formula is retainage equals the amount subject to retainage multiplied by the retainage percentage. Depending on the contract, that amount may include completed work only, or completed work plus stored materials.
Does retainage apply to stored materials?
Sometimes. Some contracts apply retainage only to installed work, while others apply it to both completed work and stored materials. The contract language controls.
How do you bill retainage on AIA forms G702 and G703?
Retainage is withheld on each application: multiply this period’s completed work (plus stored materials, if the contract includes them) by the retainage percentage on the G703, then carry the cumulative total retainage held onto the G702 summary, where it reduces Total Earned Less Retainage and Current Payment Due. At closeout, the withheld retainage is billed back on the final application.
Avoid Retainage Math Errors Entirely
PayAppPro helps contractors build cleaner pay applications with cumulative math, retainage handling, stored materials support, and reviewer-friendly PDF output.
Getting ready to request the remaining retainage?
Use the free construction closeout checklist to reconcile what is still held and organize the documents needed with your final request.
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