When calculating retainage, what percentage is commonly retained from a contractor's payment?

In construction contracts, retainage is a percentage of the payment withheld to ensure that contractors complete the project in accordance with the contract terms. It serves as a financial incentive for contractors to finish their work satisfactorily and address any deficiencies or incomplete elements. The commonly retained percentage is typically around 10%. This amount strikes a balance between providing sufficient incentive for the contractor to complete the project while also allowing the contractor to maintain enough cash flow to cover their ongoing expenses.

Retaining 5% might be too low to effectively motivate the contractor, especially on larger projects, where contractors may not have enough financial motivation to resolve any outstanding issues or defects. A retainage of 15% or higher could place an excessive burden on contractors, potentially stalling the project due to cash flow constraints or creating reluctance to complete the work promptly. Therefore, retaining 10% is seen as a fair and standard practice in many building contracts.