Retainage, In General
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| A retainage is a portion of the payment owed to a contractor that is withheld by the owner. The retainage amount is usually comprised of a pre-established percentage of the amount earned and due to the contractor. The construction contract will provide the details as far as percentage retained and retainage procedure.
The amount withheld serves to give the owner a measure of protection against liens or other claims that may arise with respect to the project. Additionally, the retainage operates as an incentive for the contractor to complete his work. As each progress payment becomes due, the amount withheld is placed into a separate fund for distribution at the end of the project.
With respect to federal contracts, a retainage is not automatically withheld. Depending on the contractor's history of performance, there may be instances where no retainage is taken. The government's contracting officer will make individual determinations as to which contractors are subject to a retainage, though the officer is bound to show cause when requiring one. Copyright 2010 LexisNexis, a division of Reed Elsevier Inc. |