Retainage (also called retention) is a percentage of each progress payment that the owner or general contractor holds back until the job is complete, as security that the work will be finished correctly. On a pay application it reduces what you collect now — so understanding the math keeps your cash flow predictable.
What retainage is
Each billing period, a set percentage of the work you have earned is withheld and accumulated. It is released near the end of the job. The most common rates are 5% and 10%. Some contracts withhold 10% until the project is 50% complete, then stop withholding on the remaining work.
How to calculate retainage
The formula is simple: retainage = retainage rate × amount completed and stored to date. Two things matter:
- It is calculated on the cumulativecompleted-and-stored amount (G703 column G), not just this period's work.
- On the G702 it appears on Line 5: 5a is retainage on completed work, 5b is retainage on stored materials. The total is subtracted on Line 6.
A worked example
Take a single $10,000 line item with 10% retainage, billed across three periods.
| App | % complete | Completed to date | Retainage (10%) | Earned less retainage | Paid this period |
|---|---|---|---|---|---|
| 1 | 40% | $4,000 | $400 | $3,600 | $3,600 |
| 2 | 70% | $7,000 | $700 | $6,300 | $2,700 |
| 3 | 100% | $10,000 | $1,000 | $9,000 | $2,700 |
After the third application you have been paid $9,000, and $1,000 of retainage is still being held — that is released with your final payment once the job closes out.
Completed work vs stored materials (5a vs 5b)
Line 5a is retainage on work you have actually installed. Line 5b is retainage on materials delivered to the site but not yet installed. Whether retainage applies to stored materials is a contract question — check before you assume.
When you get retainage back
Retainage is released at substantial or final completion, usually after the punch list is done and you have submitted any required lien waivers. If your contract uses a 50% reduction, withholding stops on work billed after the halfway point.
Watch the contract and your state
The rate, any reduction threshold, and whether retainage applies to stored materials are all set by your contract. Many states also cap retainage on public projects and set release timelines under prompt-payment or retainage statutes — confirm the rules for your specific project.
Stop building pay apps in a spreadsheet
DrawFort fills in the carry-forward, computes retainage and current payment due, handles change orders, and exports a clean G702/G703 PDF your GC can approve at a glance.