What Is Retainage in Construction?

A Plain-English Definition

Retainage is money that is earned but not yet paid. On most commercial projects, the owner or general contractor will hold back a percentage of each pay application to make sure the job gets finished and punch-list items are completed.

Retainage doesn’t mean you’re not owed the money. It simply means that a portion of what you’ve earned stays on the table until the project reaches substantial completion or final completion, depending on the contract.

Why Owners Use Retainage

From the owner’s side, retainage is a risk-management tool. Keeping a small percentage in reserve:

• Encourages contractors and subs to finish the project strong
• Helps ensure punch-list and closeout items get done
• Provides an incentive if corrective work is required

From your side as a contractor or subcontractor, retainage is a real cash-flow constraint. Understanding it - and tracking it accurately on every pay application - is critical.

Typical Retainage Percentages

Retainage percentages are defined in the contract. Common arrangements include:

• 10% retainage for the early and middle stages of the job
• 5% retainage after the project hits a certain completion threshold
• 0% retainage once the project reaches substantial completion

Some owners reduce retainage partway through the project, while others hold the full amount until the end. Whatever the arrangement, it needs to be reflected accurately on your AIA-style pay applications.

How Retainage Appears on AIA G702 & G703

On AIA-style billing, retainage shows up in multiple places. On the AIA G702 Application and Certificate for Payment, you’ll typically see:

• A line for retainage on completed work
• A line for retainage on stored materials (if applicable)
• The total retainage currently being held on the job

On the AIA G703 Continuation Sheet, retainage is tracked line by line alongside your Schedule of Values (SOV). Each line item can have its own retainage amount based on the agreed percentage.

A Simple Example

Let’s say you have a $100,000 line item and the retainage is 10%. If you’ve completed and billed $50,000 on that line so far:

• Earned to date: $50,000
• Retainage (10%): $5,000
• Amount certified for payment: $45,000

The $5,000 doesn’t disappear - it shows up in the retainage lines and is still owed to you later in the job.

Common Retainage Headaches for Contractors

Retainage itself isn’t complicated, but the way it’s tracked often is. Common problems include:

• Retainage percentages not matching the contract terms
• Retainage on stored materials handled differently than retainage on work in place
• Manual Excel formulas that don’t update properly from one pay app to the next
• Final pay applications where retainage release doesn’t match the project history
• Confusion during closeout about how much retainage is still being held

When retainage isn’t tracked consistently, it creates extra review cycles, more questions from the owner or architect, and slower payment.

How and When Retainage Is Released

Retainage release is governed by your contract and often tied to milestones such as:

• Substantial completion of the project
• Completion of specific sections or phases of work
• Final completion and acceptance of the work
• Submission of closeout documents and warranties

On your final pay applications, you’ll typically show retainage being reduced or released. That’s why keeping a clean record from the very first pay app matters so much - everything has to tie together.

How PayAppPro Handles Retainage for You

PayAppPro is built specifically for AIA-style pay applications, so retainage isn’t an afterthought - it’s built into the workflow:

• Set your retainage percentage once at the project level
• Apply different retainage to stored materials if needed
• Let the system calculate retainage on each G703 line item automatically
• See total retainage held on the G702 summary page without extra math
• Adjust retainage mid-project when the contract allows for reductions

Instead of fighting through spreadsheets every month, you simply update progress and let the system do the heavy lifting. The result: cleaner pay apps, fewer questions, and a clearer picture of how much retainage is still on the table.