What is the purpose of 'retainage' in relation to billing methods?

Retainage is a financial practice in construction contracts where a percentage of each progress payment is withheld until the project reaches substantial completion. The main purpose is to ensure that the contractor completes all contractual obligations before receiving full payment​.

Encourages Contractor Performance – Holding back a portion of payment ensures that the contractor remains committed to addressing outstanding work.

Provides Financial Leverage – Gives project owners the ability to withhold funds in case of defective or incomplete work.

Ensures Subcontractor and Supplier Payments – Helps guarantee that subcontractors and suppliers are paid once their work is verified​.

Protects Against Legal Claims – Reduces the risk of disputes by ensuring that the work is fully completed before final payment is made​.

Key Functions of Retainage:Retainage is typically set between 5% and 10% of the total contract value, depending on project size and risk level. It is released once the final inspection is approved, and all punch list items are addressed.

References:

QA Library​

DCS QA​