Construction retention, called retainage in the US, is the share of each payment your client holds back as security until the work is complete or a defects period has run. How much can be held, for how long and what triggers release is set by your contract and, depending on the project, by law. On US federal construction contracts, for example, retainage "shall not exceed 10 percent of the approved estimated amount", and "upon completion of all contract requirements, retained amounts shall be paid promptly" (FAR 32.103). In the office, retention is mostly a date problem: money that is due back has to be requested, and that means someone has to know the date. A retention log, a reminder and a drafted release request are work an AI employee can prepare. Whether the money is actually due stays your call.
This isn't legal advice. Retention rules differ by country, state and contract; the examples here are US federal rules and the German rules, as of November 2026. What AI employees can take over in a contractor's office is in AI Construction Estimating: What It Can Do.
Construction retention: two purposes, two release dates
Retention secures two different things, and a contract can release them at different times:
- Performance during the job. The client holds back part of each progress payment in case the work stalls or isn't finished. Under the US federal payment clause, the contracting officer may retain "a maximum of 10 percent of the amount of the payment" if satisfactory progress hasn't been made, and when the work is substantially complete, keeps only what is adequate and "shall release to the Contractor all the remaining withheld funds" (FAR 52.232-5(e)).
- Defects after completion. Some contracts keep part of the money through a defects or warranty period. The German standard terms for construction work, the VOB/B, separate the two clearly: the performance security comes back after acceptance once the defects security has been provided, and the defects security "after 2 years" unless another date was agreed (§ 17(8) VOB/B).
A deduction because of a specific defect or a dispute over a pay item is something else. Keep it on its own line, or two different dates get mixed up.
How much retention can be held: two examples
FAR 32.103 also says "retainage should not be used as a substitute for good contract management". On private projects, your contract and whatever law applies where you build set the terms. For German consumer contracts to build a new house or substantially convert one, the civil code itself sets a 5 percent security, which the contractor can have withheld from progress payments (§ 650m(2) BGB).
Retention on invoices and pay applications
Keep retention on its own line on every invoice, because it comes due later on its own terms. The check for every payment is one subtraction: amount billed minus amount paid should equal the retention your contract allows. If it doesn't, it's retention at a different rate, a deduction for a defect, or simply a short payment, and which one it is, you sort out. How progress invoices handle retainage is in Progress Billing Explained, With a Template. How the final invoice shows what was held is in Contractor Invoice: Template, Final Invoice.
Template: a retention log
One row per security, not per project. A job with both performance and defects retention gets two rows.
A reminder rule I'd suggest: a heads-up to you eight weeks before the release date, and on the date itself, the release request as a draft. An example row: Smith Street addition, defects retention, 5 percent cash retention of 6,200 dollars, substantial completion March 14, 2025, release under the contract two years later, March 14, 2027, no open defect notice.
Template: a retainage release letter
Plain and factual, no threats:
Subject: Release of retention, [project], contract dated [date]
Dear [name],
Under [clause] of our contract for [project], you hold retention of [amount] [in cash / as bond no. [number] issued by [issuer]]. The work was [substantially completed / accepted] on [date], and the contract sets release for [date or rule from the contract].
Please [pay the retained amount to our account [details] by [date] / return the bond by [date]], together with any documents the contract requires from you. If you believe any items are still open, please let us know so we can resolve them.
Kind regards,
[name, company]
More templates for this kind of email are in Business Email Templates: 8 Examples to Copy.
Who prepares what: Peter, Frieda and Sonja
The three roles below run in my own business. This is how you put them to work on retention:
Peter has been running in my business since August 19, 2026. Amounts, dates and receipt numbers always come from the screen, never from memory, and if something doesn't match exactly, he reports it as open. In his first run he screened 116 receipts and flagged two as open instead of forcing them to match. Peter keeps the retention log: he matches every payment received against the final invoice and flags each difference with its source. To set it up: let him observe and read, document the workflow with rules and exceptions, test it on real cases, then approve it.
Frieda runs in my own business. You define which topics rise immediately, a defect notice for example; she has never sent anything on her own. The pile system without AI is in Sorting Your Inbox: The Pile System.
Sonja has been running in my business since July 17, 2026. She learned my tone from 50 of my own real sent emails, and if a detail is missing, she asks instead of guessing. Her job is new-client emails; the method carries over to a release request. Nothing goes out until I say so explicitly.
We'll look at how to set this up in your business together.
If the client still doesn't pay after the request, the retention is an open receivable like any other. Peter handles payment reminders; what the workflow from first reminder to formal notice looks like is in Automate Payment Reminders and Dunning. How to file contracts and completion records so a stranger can find them is in Digital Receipt Filing in Germany: GoBD Rules.
More for construction companies
Frequently asked questions
What is retention in construction?
Money the client holds back from each payment as security that the work gets finished and defects get fixed. Retention is the common UK term, retainage the US one. It's part of your contract price, paid later.
How much retention can a client hold?
Whatever your contract allows, within any law that applies. On US federal fixed-price construction contracts the cap is 10 percent. Under the German VOB/B the total is set in the contract, and each payment can be cut by at most 10 percent until it is reached.
When is retainage released?
When your contract says. On US federal contracts, remaining funds beyond what is adequate are released at substantial completion and the rest promptly once all requirements are met. Under the German VOB/B, the defects security comes back after two years unless another date was agreed.
Can I replace cash retention with a bond?
It depends on your contract and local law. Under the German VOB/B, the contractor may choose the form of security and swap one for another, so cash retention can be replaced by a bond from a bank or credit insurer, unless the contract says otherwise (§ 17(2) and (3)).
How to keep going
Pull the final invoices of the last few years and put every retention into the log: amount, completion date, release date with its clause. Rows whose release date has already passed are your first job. If you want to look at it together, book a strategy session: in 20 minutes we look at the one workflow in your business that depends on you the most. Other industries are collected on AI by industry.
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