Why We Don't Hold Retainage, And What That Means for Your Project
What Retainage Is, and Where It Came From
On most construction contracts, a portion of every payment is withheld until the project is finished, a practice called retainage. It typically runs five to ten percent of each progress payment, and the last piece is often not released until well after the visible work is done, sometimes tied to a defects-liability period stretching another twelve months past substantial completion. It is standard enough that most clients simply assume it is just how construction billing works.
It did not start that way, and it is not as old as construction itself. Retainage traces back to the railway boom in 1840s Britain, when demand for new track outstripped the supply of experienced contractors. Inexperienced firms entered the market, some failed to finish what they started, and railway companies began withholding as much as twenty percent of payments as insurance against abandoned work. The practice spread through the broader construction industry over the following decades and eventually crossed the Atlantic, where it settled into something closer to its modern form: ten percent historically, moving toward five percent as the more common ceiling today.
Who Actually Carries the Weight of It
Retainage is pitched as protection for the owner, and it can serve that purpose. But the parties who feel it most are rarely the ones asking for it. A 2025 survey of more than 800 subcontractors, general contractors, and suppliers found that 40 percent of subcontractors keep half or more of their profits parked in the business just to fund ongoing operations. The same survey found that while general contractors estimated payment arrived roughly 30 days after an invoice, subcontractors reported waiting 56 days on average, and 43 percent said they did not have enough working capital on hand to absorb an unexpected expense or delay.
The mechanics compound the problem. A subcontractor who finishes site work in month two of a multi-year project does not typically see that retained money until the whole job reaches substantial completion, which might be a year or more later. It is also not uncommon for a general contractor to withhold more from subcontractors than the owner withholds from the GC, effectively funding the gap out of the subcontractors' own retained cash. None of this is unique to any one firm's practices; it is close to how the standard flows through most of the industry.
States Have Started Pulling Back on It, Massachusetts Included
The regulatory trend has moved in one direction for fifty years: down. Since the mid-1970s, federal construction contracts have trended toward lower retainage, and the current Federal Acquisition Regulation instructs contracting officers not to use retainage as a substitute for active contract management. More than thirty states now have statutes governing retainage on private work, and the newer ones increasingly cap it at five percent: Colorado's cap took effect in 2021, New York's original cap took effect in 2023 and was tightened further in December 2025 to close a contract-language loophole, and California's cap on private projects took effect at the start of 2026.
Massachusetts got there earlier than most. Since 2014, the state has capped retainage at five percent of each progress payment on private projects valued at three million dollars or more, with strict timelines for invoicing and releasing what is withheld. It is a meaningful protection on large commercial work. It is also, notably, not a law that reaches most custom single-family homes: the statute carves out an exception for projects involving four or fewer residential dwelling units, regardless of contract value. A custom home or major renovation in Lexington or Concord sits outside the law's protection entirely. Colorado's statute carves out a nearly identical exception for single-family homes and small multi-family buildings. Nothing in either state requires a builder working on a project like that to cap retainage, disclose it clearly, or release it on any particular timeline. Whatever happens on that front is a matter of the contract, not the statute.
New Hampshire, and Where That Leaves a Lakefront Project
New Hampshire goes further in the other direction: it has no prompt payment statute at all, for public or private work, and no retainage statute governing private construction. Contractors and owners are not required to hold retainage in a separate account, and no percentage is set by law. Whatever a private contract says, goes.
That combination, an exemption in Massachusetts and no framework at all in New Hampshire, means that for the kind of work we do, custom homes, renovations, and lakefront new construction, retainage is entirely a matter of choice on both sides of the state line, not a floor set by regulators.
Why We Don't Use It Anyway
We do not use retainage on any W. H. Lyon Builders project, new construction or renovation, regardless of size. That is not a marketing point tacked on after the fact; it follows from how we bill in the first place. We work on a cost-plus basis with a disclosed Builder's Fee, and we keep our books open to clients for the life of the project. Every invoice reflects actual costs as they are incurred, and clients can see where the money is going, cycle to cycle, rather than reconciling it all at closeout.
Retainage exists to solve a trust problem: the owner does not yet know whether the contractor will finish the job to standard, so cash becomes the leverage that keeps everyone honest until the final walkthrough. Open-book billing solves a version of the same problem differently. Instead of withholding money at the end, it makes the ongoing relationship transparent enough that withholding stops being the mechanism doing the work. If a client can see costs as they land, there is less need for a lump sum held in reserve as insurance.
What This Means in Practice
For clients, that means progress payments reflect the real state of the work, with no year-end holdback to negotiate down at the finish line. For architects and designers coordinating the schedule alongside us, it is one less line item to track and dispute as a project wraps up. And for the trade partners on site, plumbers, electricians, cabinet shops, it means being paid for completed work on the normal cycle rather than carrying our project on their own balance sheets until we are satisfied. We have found that this keeps good subcontractors coming back project after project, which is itself a form of quality control that a cash holdback cannot replicate.
None of this replaces the ordinary safeguards of a well-run job: a clear scope, a realistic schedule, and someone accountable for the punch list at the end. What it removes is the adversarial default, the assumption that a client needs to hold money hostage to keep a contractor's attention through the finish. We would rather earn that attention through the way the job runs week to week, not through what is withheld at the end.
We build and renovate across Lexington, Concord, Lincoln, Bedford, Weston, Wayland, and Sudbury, the broader MetroWest area, and select lakefront projects in New Hampshire. If you are an architect, designer, or homeowner curious how an open-book, no-retainage contract works in practice, we are glad to walk through it. Visit us at wh-build.com
Bibliography
1. "Retainage." Wikipedia, The Free Encyclopedia (accessed July 2026).
