Retainage is the 5-10% of your payment that gets withheld until the job is complete. The rules governing when you get that money back—and whether you can collect interest if it’s late—depend entirely on which state you’re working in and whether the project is public or private.
California now caps private retainage at 5% with automatic 2% monthly penalties for late release. New York requires retainage release at substantial completion, not final closeout. New Mexico banned retainage entirely on most public projects. Texas enforces automatic 1.5% monthly interest on any late retainage payment—no contract clause needed.
This guide shows every state’s retainage cap, release deadline, and interest penalty as of May 2026, explains the major law changes from 2024-2026, and breaks down what you can actually enforce when owners delay payment.
Retainage State-by-State: All 50 States
Maximum retainage percentages, mandatory release timelines, and interest penalties vary dramatically. Public projects generally have tighter caps and faster deadlines. Private projects follow state law only if one exists—otherwise, contract terms are the only rule.
| State | Max Retainage (Public) | Max Retainage (Private) | Release Deadline (Public) | Release Deadline (Private) | Interest on Late Payment |
|---|---|---|---|---|---|
| Alabama | 5% | No cap | 45 days post-completion | Per contract | Per contract |
| Alaska | 10% | No cap | 90 days post-acceptance | Per contract | Per contract |
| Arizona | 10% | 10% | 60 days post-completion | Per contract | 1% monthly (public only) |
| Arkansas | 10% | No cap | 60 days post-acceptance | Per contract | Per contract |
| California | 5% | 5% (SB 61, eff. Jan 2026) | 60 days post-completion | 45 days post-completion | 2% monthly (automatic if >5%) |
| Colorado | 5% | No cap | 60 days post-acceptance | Per contract | Per contract |
| Connecticut | 5% | 5% | 90 days post-completion | Per contract | 1% monthly (public only) |
| Delaware | 5% | No cap | 60 days post-acceptance | Per contract | Per contract |
| Florida | 5% | 10% (market standard) | 30 days post-acceptance | Per contract | Per contract |
| Georgia | 10% | No cap | 60 days post-acceptance | Per contract | Per contract |
| Hawaii | 5% | No cap | 30 days post-acceptance | Per contract | Per contract |
| Idaho | 5% | No cap | 45 days post-acceptance | Per contract | Per contract |
| Illinois | 10% (5% after 50% complete) | 10% | 90 days post-acceptance | Per contract | 1% monthly (public only) |
| Indiana | 5% | No cap | 60 days post-completion | Per contract | Per contract |
| Iowa | 5% | No cap | 30 days post-acceptance | Per contract | Per contract |
| Kansas | 5% | No cap | 60 days post-acceptance | Per contract | Per contract |
| Kentucky | 5% | No cap | 45 days post-acceptance | Per contract | Per contract |
| Louisiana | 10% | 10% | 45 days post-acceptance | Per contract | Per contract |
| Maine | 5% | No cap | 30 days post-acceptance | Per contract | 1% monthly (public only) |
| Maryland | 5% | No cap | 30 days post-acceptance | Per contract | 1% monthly (public only) |
| Massachusetts | 5% | No cap | 30 days post-acceptance | Per contract | 1% monthly (public only) |
| Michigan | 10% | No cap | 60 days post-completion | Per contract | Per contract |
| Minnesota | 5% | No cap | 60 days post-acceptance | Per contract | Per contract |
| Mississippi | 5% | No cap | 60 days post-acceptance | Per contract | Per contract |
| Missouri | 5% | No cap | Per contract | Per contract | Per contract |
| Montana | 5% | No cap | 60 days post-acceptance | Per contract | Per contract |
| Nebraska | 10% | No cap | 60 days post-acceptance | Per contract | Per contract |
| Nevada | 5% | 10% | 60 days post-acceptance | Per contract | 1.5% monthly (public only) |
| New Hampshire | 5% | No cap | 60 days post-acceptance | Per contract | Per contract |
| New Jersey | 10% | 10% | 60 days post-acceptance | Per contract | Per contract |
| New Mexico | 0% (banned on most projects) | 5% | N/A | Per contract | Per contract |
| New York | 5% | 5% (contracts >$150K) | At substantial completion | At substantial completion | 1% monthly (public only) |
| North Carolina | 5% | No cap | 60 days post-acceptance | Per contract | Per contract |
| North Dakota | 5% | No cap | 60 days post-acceptance | Per contract | Per contract |
| Ohio | 5% | No cap | 60 days post-acceptance | Per contract | Per contract |
| Oklahoma | 5% | No cap | 60 days post-acceptance | Per contract | Per contract |
| Oregon | 5% | No cap | 30 days post-acceptance | Per contract | Per contract |
| Pennsylvania | 10% | No cap | 60 days post-acceptance | Per contract | 1% monthly (public only) |
| Rhode Island | 5% | No cap | 30 days post-acceptance | Per contract | 1% monthly (public only) |
| South Carolina | 5% | No cap | 60 days post-acceptance | Per contract | Per contract |
| South Dakota | 5% | No cap | 60 days post-acceptance | Per contract | Per contract |
| Tennessee | 5% | No cap | 60 days post-acceptance | Per contract | Per contract |
| Texas | 10% | 10% | 30 days post-acceptance | 30 days post-acceptance | 1.5% monthly (automatic) |
| Utah | 5% | No cap | 45 days post-acceptance | Per contract | Per contract |
| Vermont | 5% | No cap | 60 days post-acceptance | Per contract | Per contract |
| Virginia | 5% | 5% | 30 days post-acceptance | 30 days post-acceptance | 1% monthly (automatic) |
| Washington | 5% | No cap | 60 days post-acceptance | Per contract | 1% monthly (public only) |
| West Virginia | 5% | No cap | 60 days post-acceptance | Per contract | Per contract |
| Wisconsin | 5% | No cap | 30 days post-acceptance | Per contract | 1% monthly (public only) |
| Wyoming | 5% | No cap | 60 days post-acceptance | Per contract | Per contract |
Major Retainage Law Changes (2024-2026)
California SB 61: 5% Private Cap and Automatic Penalties (Effective January 1, 2026)
California extended its 5% retainage cap from public to private construction projects. Before 2026, private contracts could withhold 10% or more with no limit. Now any private contract signed after January 1, 2026 is capped at 5%.
The enforcement mechanism: automatic 2% monthly penalty on late retainage. If retainage exceeds 5% or isn’t released within 45 days of final completion, the withheld amount accrues 2% interest per month—24% annually. This penalty is non-waivable. Owners can’t contract around it.
Example: $50,000 retainage held six months past the 45-day deadline accrues $6,000 in penalties ($50,000 × 2% × 6 months). Most owners settle within days once you cite SB 61 in a demand letter.
New York Prompt Payment Act Amendments: Substantial Completion Trigger (Effective November 2023)
New York amended its Prompt Payment Act to allow retainage release at substantial completion instead of final closeout. Substantial completion means the owner can occupy and use the project, even if minor punch list items remain.
The law also capped retainage at 5% for contracts exceeding $150,000 and required release within a reasonable time after substantial completion—typically 30-45 days. On public projects, 1% monthly interest accrues on late payments.
Impact: Contractors can demand retainage release the day the owner takes occupancy. This accelerates cash flow by months and eliminates the leverage owners used to have by delaying punch list sign-off.
New Mexico Retainage Ban: Public Projects Under $500K (Expanded 2024)
New Mexico prohibits retainage on most public construction projects under the Public Works Minimum Wage Act. The state expanded enforcement in 2024, clarifying that public agencies cannot withhold retainage on contracts under $500,000. Above that threshold, retainage is capped at 5% and must be released within 30 days of final acceptance.
This makes New Mexico the most contractor-friendly state for public work. Private projects can still include retainage, but market pressure from the public sector has pushed many private owners to waive or cap it at 5%. Learn more about managing cash flow when retainage impacts working capital.
Federal Projects: Miller Act Retainage Rules
Federal construction contracts follow the Miller Act, which requires payment bonds and sets specific retainage release timelines. The standard federal retainage structure:
- 5% retainage withheld on each progress payment until project reaches 50% completion
- At 50% completion, retainage is reduced or eliminated if progress is satisfactory (typically 40% of previously held retainage is released)
- Final retainage must be released within 30 days of final acceptance
- Payment bond claims substitute for mechanics liens on federal property
Most state public projects follow “Little Miller Acts” that mirror this structure. See our guide on how Little Miller Acts work by state for detailed coverage of state-level payment bond requirements.
Pay-If-Paid vs Pay-When-Paid: The Clause That Shifts All Risk
Subcontractors face an additional layer beyond retainage: whether the general contractor’s payment to you depends on them getting paid by the owner.
Pay-When-Paid: The GC must pay you within a reasonable time after you complete work, regardless of whether the owner paid them. This is the majority rule in most states. If the GC doesn’t pay within 30-60 days, you can file a lien or sue for breach.
Pay-If-Paid: The GC only pays you if the owner pays them first. You’ve assumed the owner’s credit risk. If the owner goes bankrupt or disputes the invoice, the GC has no obligation to pay you—even if your work is perfect.
Pay-if-paid clauses are unenforceable in California, New York, and North Carolina. They’re valid in Texas, Florida, and Georgia. Contract language matters: “Payment to contractor is a condition precedent to payment to subcontractor” is pay-if-paid. Always read subcontract payment clauses. For a detailed breakdown of risks, see pay-when-paid vs pay-if-paid legal analysis.
How to Enforce Retainage Release
Send a Demand Letter With Statutory Citations
Before filing legal claims, send a formal demand letter citing the specific state statute governing retainage release. Include the contract clause, the date retainage became due, the amount owed, and the daily interest accruing.
Texas example: “Pursuant to Texas Property Code § 28.006, retainage of $50,000 became due on March 15, 2026. Under Texas law, this amount accrues 1.5% monthly interest from the due date. As of today, total owed is $52,250. Payment is demanded within 10 days to avoid further interest and attorney fee claims.”
California example: “Pursuant to California Civil Code § 8800 and SB 61, retainage of $50,000 became due on March 30, 2026 (45 days post-completion). This amount accrues 2% monthly penalties from the due date. Total owed as of today: $53,000. Immediate payment required.”
File a Mechanics Lien
Mechanics liens work for retainage, but timing is critical. Your lien deadline usually starts at final completion or last day of work, not when retainage becomes due. Miss the deadline and leverage vanishes.
Lien deadlines by state (from final furnishing):
- Texas: 90 days
- California: 90 days
- Florida: 90 days (with prior Notice to Owner within 45 days of first work)
- New York: 90 days (with Notice of Intent 10 days prior)
- Georgia: 365 days (but claim of lien must be filed within 90 days)
Once filed, the lien clouds the property title. If the owner is refinancing or selling, their lender demands the lien be cleared immediately. This creates pressure that often results in payment within 14-30 days. For comprehensive lien strategies, see how to avoid mechanics liens and recovering unpaid invoices legally.
Payment Bond Claims (Public Projects)
Federal and state public projects require payment bonds. If retainage isn’t released, file a claim against the bond instead of a lien. Bond claims have strict notice deadlines—typically 90 days from final furnishing. The surety investigates and either pays you directly or pressures the contractor to settle.
On bonded private projects, payment bond claims work the same way. Bond claims are often faster than lien foreclosure because sureties want to avoid litigation costs. Learn about surety bond requirements and enforcement.
Retainage Alternatives: Bonds and Partial Releases
Retainage Bonds
Some states allow retainage bonds to replace cash holdbacks. You pay a surety company 1-2% of the retainage amount to issue a bond guaranteeing completion. The owner gets the same protection, but your $50,000 comes back immediately instead of sitting for a year.
Retainage bonds make sense if your bonding capacity is strong and the job duration exceeds six months. The 1-2% bond premium is often cheaper than six months of interest on a line of credit at 10% APR ($2,500 vs $750 bond cost on $50,000 retainage).
Negotiate Dollar Caps and Partial Releases
Standard contracts say “10% retainage.” Counter with “5% retainage, capped at $25,000.” On a $500,000 job, this frees up $25,000 immediately while still giving the owner security.
Request partial release at milestones: “Release 50% of retainage upon substantial completion and certificate of occupancy. Release remaining 50% within 30 days of punch list completion.” This gets half your retainage back months earlier.
This guide reflects U.S. construction retainage laws as of May 2026. State statutes and court interpretations change frequently. This article provides general information and does not constitute legal advice. Consult a licensed construction attorney in your state before making decisions based on retainage laws, contract terms, or lien rights. For state-specific guidance, contact your state contractor licensing board or bar association. Additional resources: SBA.gov and Associated General Contractors of America.
Frequently Asked Questions
Retainage is the percentage of each progress payment—typically 5-10%—that an owner or general contractor withholds until the project is complete. The stated purpose is to ensure contractors finish the work and fix defects. The practical effect is transferring working capital risk to contractors and subcontractors, who must finance the gap between paying expenses and receiving final payment. On a $500,000 job with 10% retainage, $50,000 is held until final completion, which can be 6-18 months after the contractor has finished work and paid their crew.
It depends on state law and contract terms. In states with strong prompt payment laws—California (45 days post-completion for private, 60 for public), Texas (30 days), Virginia (30 days)—retainage must be released within the statutory deadline or interest penalties accrue. In states without statutory deadlines—Missouri, Wyoming, Alabama (private projects)—contract terms govern, and owners can delay release for months by tying it to vague conditions like "final acceptance" or "receipt of all lien waivers." On federal projects under the Miller Act, final retainage must be released within 30 days of final acceptance.
New Mexico prohibits retainage on most public construction projects under $500,000 and caps it at 5% above that threshold. California capped private project retainage at 5% effective January 2026 (previously no cap) and imposes automatic 2% monthly penalties for late release. New York caps retainage at 5% for contracts exceeding $150,000 and allows release at substantial completion rather than final closeout. Texas, Virginia, and several other states cap public project retainage at 5-10% and mandate release within 30 days of acceptance, with automatic interest penalties for delays.
Yes, if state law or your contract allows it. Texas, Virginia, and Nevada have automatic statutory interest (1.5%, 1%, and 1.5% monthly respectively) that accrues on late retainage payments without needing a contract clause. California imposes 2% monthly penalties if retainage exceeds 5% or isn't released within 45 days post-completion (automatic under SB 61, effective Jan 2026). In states without statutory interest, you must include an interest clause in your contract specifying the rate and when it accrues. Always cite the specific statute in demand letters to maximize leverage.
Pay-when-paid means the general contractor must pay you within a reasonable time after you complete work, regardless of whether the owner has paid them. This is the majority rule in most states. Pay-if-paid means the GC only pays you if the owner pays them first—you've assumed the owner's credit risk. If the owner goes bankrupt or disputes payment, the GC has no obligation to pay you even if your work is perfect. Pay-if-paid clauses are unenforceable in California, New York, and North Carolina, but valid in Texas, Florida, and Georgia. Always read subcontract payment clauses. If it says "payment to contractor is a condition precedent to payment to subcontractor," that's pay-if-paid and you should push back or price the risk into your bid.
Negotiate release triggers upfront: substantial completion instead of final closeout, partial releases at milestones (e.g., 50% at certificate of occupancy), and dollar caps instead of percentages (e.g., "5% capped at $25,000"). Document every completion milestone with photos, inspection reports, and certified mail to the owner. Send a formal retainage release invoice the day the trigger is met, citing the contract clause and state statute. If payment doesn't arrive within the statutory deadline, send a demand letter citing automatic interest penalties. Consider substituting a retainage bond (costs 1-2% of retainage amount) to get your cash back immediately while still protecting the owner.
Yes. Mechanics liens cover all unpaid amounts, including retainage. The key is timing—your lien deadline usually starts at final completion or your last day of work, not when retainage becomes due. In Texas, you have 15 days after the 30-day payment deadline to send a demand letter, then 90 days to file the lien. California allows 90 days from completion. Florida requires a Notice to Owner within 45 days of first furnishing and a lien within 90 days of final furnishing. Missing these deadlines eliminates your lien rights entirely. Always calendar lien deadlines the day you start work and file before the owner disputes the amount owed.
A retainage bond (also called a retention bond) is a surety bond that substitutes for cash retainage. You pay a surety company 1-2% of the retainage amount to issue a bond guaranteeing project completion. The owner gets the same protection, but your retainage is released immediately instead of being held for months. This makes sense if your bonding capacity is strong, the job duration exceeds six months, and you're financing working capital with a line of credit costing more than 2% annually. On a $50,000 retainage held for 12 months, a 1.5% bond ($750) is cheaper than 10% interest on a line of credit ($5,000).
Yes. Public projects—federal, state, county, municipal—have tighter rules. Federal contracts follow the Miller Act: payment bonds required, 5% retainage cap common, partial release (typically 40%) at 50% completion, final release within 30 days of acceptance. Most states have Little Miller Acts that mirror this structure. Private projects follow state law if it exists, otherwise contract terms govern entirely. In states without private project retainage caps—Missouri, Wyoming, Alabama—owners can withhold 10-15% with no statutory release deadline. Always check whether your project is public or private and which set of rules applies before signing.
Send a formal demand letter within 7 days of the missed deadline. Cite the specific state statute governing release timelines, the contract clause, the amount owed, and the daily interest accruing under state law. Example: "Pursuant to Texas Property Code § 28.006, retainage of $50,000 became due on [date]. This amount accrues 1.5% monthly interest from the due date. Total owed as of today: $52,250. Payment demanded within 10 days." Most owners settle immediately to avoid further interest and attorney fee exposure. If they don't respond, file a mechanics lien (private projects) or payment bond claim (public/bonded projects) within your state's deadline. Never wait—delay costs you interest and weakens your legal position.
