Why does retention (retainage) create a cash-flow challenge for a contractor?
Explanation
Retention is money already earned but held back until the work is complete and accepted, while wages, materials and subcontractors still have to be paid on time, so the contractor funds the last slice of every job out of its own pocket. It does not change the overhead rate, which is computed from the company's own costs. It is not a tax and never goes to the IRS. And it is not added to the price: it is withheld from payments that are already part of the price, which is why Public Contract Code §7107 penalises a public entity that holds it too long.
Law Reference: Public Contract Code §7107; Civil Code §8812This topic, taught in full in the CSLB Law & Business guide. CSLB Law & Business — Complete Study Guide (2026) — PDF + EPUB, $24.99 · 14-day refund →
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