What is the purpose of a "retainage" or "retention" clause in a construction contract?
Explanation
A retainage clause lets the owner hold back part of each payment until the work is complete (d), as security that the contractor will finish and correct defects. California now caps the percentage: Public Contract Code §7201 holds most public works to 5%, and Civil Code §8811 holds private works to 5% for contracts entered into on or after January 1, 2026, so the 10% once customary on private jobs survives only for earlier contracts and the statute's narrow exceptions. (a) reverses the payment chain — retention flows down, not around it. (b) confuses retention with a contingency allowance, which is budgeted into the price rather than withheld from it. (c) describes liquidated damages, a separate remedy for delay.
Law Reference: Civil Code §8811; §8812; Public Contract Code §7201This topic, taught in full in the CSLB Law & Business guide. CSLB Law & Business — Complete Study Guide (2026) — PDF + EPUB, $24.99 · 14-day refund →
Practice all 1632 questions free — no signup required.
Own the complete CSLB Law & Business guide — PDF + EPUB, $24.99 →
Related questions on this topic
- A contractor's accounts receivable are growing while cash on hand is shrinking. This most likely indicates:
- Which type of insurance protects a contractor if a third party is injured on the job site?
- A contractor uses the percentage-of-completion method for revenue recognition. If a job is 40% complete and the total contract value is $200,000, recognized revenue to date is:
- A contractor's current ratio is 0.8. This means:
- Before starting a project, a contractor should prepare a schedule of values in order to:
- A contractor receives a $5,000 deposit on a contract. Under California law for home improvement contracts, the maximum down payment is:
Last reviewed: · editorial process