A tool used by a developer, contractor or homeowner to keep the primary party committed to getting the project completed is called ‘retainage’. In effect, retainage means to withhold a small percentage of all payments made until all the work is done. The idea is prevent the contractor, subcontractor or vendor from earning their respective profit until they have completed their agreed upon service.
Retainage is a construction contract clause most commonly found with government and long-term construction projects. It is effectively a hold-back of payment to a contractor or a subcontractor tied to full completion of the project. The usual amount is 10%. The purpose is to eliminate the contractor’s perceived profit during construction and ensure the contractor/subcontractor complete their respective obligations. Payment is rendered upon full completion of the project.