Construction retainage: a practical guide for Texas subcontractors

What is retainage in construction?

Retainage is a portion of an earned construction payment held for a later release under the applicable agreement. A subcontractor can finish the work supporting a progress request and receive less than that request’s gross earned amount because part is retained. The unpaid portion needs a separate record; it should not disappear when the current net request is marked paid.

In a Texas subcontractor office, the practical questions are straightforward: which clause authorizes the hold, what work or materials the calculation covers, what amount is still held, and what evidence is required before release? A percentage without that context is not enough to reconcile a project.

Retainage, retention and holdback are terms an office may encounter in correspondence. Use the wording in the actual agreement and identify the transaction behind it. This guide explains payment administration; the Texas retainage notice guide covers the separate notice review.

Separate retainage from an overdue invoice or disputed deduction

A short payment is not automatically retainage. The customer may have retained an agreed portion, disputed a line, applied a credit or simply paid less than the amount currently due. Classifying every difference as retained money can hide an unresolved payment problem.

Keep the explanation tied to evidence. Ask for the payment breakdown when a remittance is unclear, and preserve the customer’s response. Do not create an agreed credit to make the figures match. Use the invoice dispute log when a challenged amount requires a decision.

Worked example: a 5% retainage calculation

Original illustrative assumptions: a Texas commercial electrical subcontract has $40,000 of supported cumulative earned work. The fictional agreement retains 5% of that amount. There are no stored materials, changes, taxes, credits or other adjustments. The prior net application was $23,750, and that prior request has been fully paid.

Cumulative retained money is $40,000 multiplied by 5%, or $2,000. Cumulative net earned value is $38,000. Subtract the $23,750 previously requested to arrive at a current-period net request of $14,250. The $2,000 cumulative retainage remains tracked separately.

In this example, only $10,000 of the current $14,250 request is actually received and allocated. Ordinary unpaid billing is therefore $4,250, separate from the $2,000 held retainage. Total uncollected is $6,250: $40,000 earned less $23,750 prior receipts less $10,000 current receipts. This total is not all retainage, and its due status requires the actual payment terms; do not assume it is all overdue. Prior applications and prior receipts serve different purposes.

The assumed 5% is an example, not a Texas-wide required rate. When the agreement uses different rates for different categories or reduces a rate later, document the actual basis and approval. Use the progress-billing calculator for the cumulative-to-current bridge.

Check the rate and calculation base before sending the request

Write down which clause and approved application support the rate. Identify whether the retained amount is cumulative or a movement for this period. Adding every month’s cumulative retained total can count the same money several times.

AIA’s official payment-application guidance distinguishes fixed and variable retainage treatment. That form guidance describes how amounts are presented; it does not choose the contractual rate for your project. Follow the actual form edition and project instructions, and use the schedule-of-values guide to support the underlying earned amount.

Before the packet leaves the office, have the reviewer reproduce the calculation from the source records. Preserve the version sent and any correction history so a later rate change does not silently rewrite an earlier request.

Held, released and received are different payment states

Release eligibility starts with the actual agreement and applicable requirements. Completion, acceptance, punch-list resolution and other documents may need review. A verbal promise or an approved application is not evidence that cash has arrived.

Continue the same $40,000 example above; do not start a second debt. An authorized release record transfers $800 from the $2,000 held balance. The result is $1,200 still held, $800 released but unpaid and $4,250 ordinary unpaid: total uncollected remains $6,250. A requested release without authorization stays pending review; it is not the approved transfer shown here.

A later verified $500 receipt is specifically allocated to that $800 release. The remaining balances are $1,200 held, $300 released but unpaid and $4,250 ordinary unpaid, totaling $5,750. Independent check: $40,000 earned − ($23,750 prior receipts + $10,000 current receipt + $500 release receipt) = $5,750. No taxes, changes, stored materials, credits or other adjustments are included.

Approval changes categories; receipt of cash reduces the total. Do not subtract the $800 transfer again as if it were payment, or apply the $500 receipt to ordinary billing as well. Use the payment-allocation guide to trace the remittance. The retainage ledger guide covers period movements and the review worksheet.

Keep evidence and a next action for each open balance

Save the application, authorization and receipt references at the same review cutoff. A due date that has not been established remains unknown. These operational categories organize evidence; they do not establish release entitlement, accounting presentation or a statutory deadline.

Receivable and payable depend on whose books you are reviewing

Retainage receivable is the operational label for retained amounts owed to your business. Retainage payable identifies retained amounts your business owes downstream under a separate agreement. A subcontractor that hires lower-tier trades may need both schedules.

Identify the counterparty and agreement on every row. Money your customer holds and money you hold from a lower-tier party should not be offset merely because both relate to the same job. Reconcile the two obligations independently and have your accountant determine the financial-reporting treatment.

Use the supplier-statement guide when the downstream statement disagrees with the supported payable schedule.

Keep the Texas legal review beside the payment record

Contractual payment holds, owner reserved funds and rights-preservation tasks have different purposes. Chapter 53 separately addresses unpaid-retainage notice and owner reserved funds. An internal percentage or release target cannot stand in for the applicable legal review.

Classify the project before using a deadline guide. Texas state/local public-work bond claims have a separate framework from private-project liens. Original-contract date, claimant relationship and the type of balance belong in the review file.

For an active private claim, use the retainage notice guide and lien-affidavit guide. For Texas state/local public work, use the payment-bond guide. Have qualified counsel assess the actual requirements before relying on a notice or filing calendar.

A practical retainage review for the subcontractor office

Run this review when an application is prepared, a rate changes or a release is discussed. Save a dated snapshot with the supporting documents so the next reviewer can explain what changed.

• Identify the customer, project, agreement and responsible reviewer.
• Confirm the supported earned amount and authorized retainage basis.
• Label each figure as cumulative or current-period.
• Reconcile prior applications separately from actual allocated receipts.
• Record rate changes and release approvals without overwriting history.
• Keep held and released-but-unpaid amounts visible.
• Review unresolved deductions and waiver wording separately.
• Maintain the relevant notice and filing review alongside payment follow-up.
• Close a received-payment task only after funds and allocation are verified.

Retainage questions Texas subcontractors ask

Is retainage a fee? In this guide, it is an earned payment portion held for later release. If a deduction is described as a fee, obtain the clause and itemized explanation rather than assuming it is recoverable retained money.

Does 100% complete mean retainage has been paid? No. Work completion, approved release and verified receipt are different events.

Can every project use the example’s 5%? No. It is a fictional calculation assumption. Use the actual agreement and applicable requirements.

Should I subtract retainage again after calculating the net request? Check what the figure already includes. Subtracting the same hold twice understates the request.

Is a retained balance always currently overdue? Check the actual due-date and release basis. Keep the held amount visible without inventing a due date.

Does the office ledger determine accounting classification or lien validity? No. It organizes the payment evidence for the appropriate accounting and legal reviews.