Retainage: The Second Holdback on Your Restoration Rebuild

You already know one holdback. The carrier pays actual cash value first and keeps the recoverable depreciation until you document that the work is finished. Every restoration owner has lived that.

Here is the one that catches people on the reconstruction side. On the same loss you can be carrying a second holdback, held by a different party and released on a different trigger. It is called retainage, and most owners budget for exactly zero of it.

What retainage actually is

Retainage is a slice of every progress payment that the owner or the general contractor keeps until the job is substantially complete. It is not a penalty and it is not a dispute. It is written into the contract before anyone picks up a hammer, so the party paying you holds leverage until the punch list closes.

The number is usually 5 percent, and increasingly that is a legal ceiling rather than a negotiating position.

• Oregon. ORS 701.420 lets an owner, contractor or subcontractor withhold "not more than five percent of the contract price of the work completed," with escrow required above a $500,000 contract price.
• Washington. RCW 60.28.011 caps public improvement retainage at five percent of the money earned, and separately caps what a contractor may withhold from a subcontractor at five percent.
• California. Civil Code section 8811, for private-works contracts signed on or after January 1, 2026, caps private retention at 5 percent, cannot be waived by contract, and carries a 2 percent per month penalty plus attorney fees.
• Direct federal work. The Federal Acquisition Regulation still permits up to 10 percent when the contracting officer finds progress unsatisfactory.

Ten percent used to be the default everywhere, and on private work in states without a cap, it still can be.

Five percent of the contract is not five percent of your job

Here is the part owners miss, and it is arithmetic rather than opinion.

Retainage does not come out of your costs. Your costs are already gone. Labor went out Friday, the drywall was COD, the sub invoiced at thirty days. Retainage comes out of the last money in, and the last money in is the money you were going to keep.

Run it. Hold a genuinely good 10 percent net margin on a $400,000 reconstruction contract and that is $40,000 of profit. Five percent retainage on the same contract is $20,000. Half the job's profit is parked in someone else's account until closeout. At 10 percent retainage, all of it. (Illustration on stated assumptions, not a benchmark.)

The restoration version: two holdbacks, one loss

Now stack them. On an insurance rebuild you can be holding a retainage receivable from the owner or GC under your contract, and a recoverable depreciation receivable from the carrier under the policy, on the same building on the same day.

They are not the same money and they do not behave alike:

• Different payer. One is the property owner or the general contractor. The other is an insurance company.
• Different trigger. Retainage releases on substantial completion, punch list, final acceptance and lien waivers. Recoverable depreciation releases when the carrier is satisfied the repairs happened. The NAIC describes replacement cost coverage as paying to repair or replace with like kind and quality, while actual cash value pays after age and wear are deducted.
• Different remedy. Retainage held improperly is a contract claim, a prompt-payment statute, and in most states a lien right. Depreciation held is a claims process.

A normal general contractor carries one of these. You can carry both. An owner who thinks of "the holdback" as one thing forecasts one and is wrong by the other.

Why both of them hide

They fail on the books the same way. Under ASC 606 the revenue was recognized as you performed, so the earnings are already on your P&L. But the cash is not in A/R aging where you would notice it going stale, and it is not in your forecast unless you put it there on purpose. It simply, quietly, does not arrive.

Five moves

1. Read the retainage clause before you sign, not at closeout. Percentage, release trigger, who holds the funds, whether interest accrues. Then check your state's cap: in several states a clause above it is unenforceable no matter what both parties agreed.
2. Carry retainage as its own receivable line with a named release condition and a date. Not "open A/R." A line that says what has to happen and who has to do it.
3. Put both holdbacks in the 13-week forecast at their real release dates. Not at substantial completion, which is when you feel the money should come.
4. Ask for the alternative. A retainage bond, a letter of credit, escrow, or line-item release on scope already finished and accepted. Ordinary requests in commercial construction, and contractors who never ask never get them.
5. Flow it down honestly. Do not withhold a higher percentage from your subs than is being withheld from you. In California you legally cannot, and everywhere else your subs are your surge capacity, not your bank.

None of this makes retainage go away. It turns it into a scheduled event instead of a surprise, which is the entire job, and a fair description of the CFO seat: find the money that is real, earned, and invisible, and put it on a calendar. Start here if you want a second set of eyes on where yours is sitting.

General education for restoration and reconstruction owners, current as of September 2026. Retainage rules vary by state and by whether the project is public or private, and this is not a substitute for advice from an attorney licensed in your state or from your own CPA.

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