By Claire Wilson, Siteline
The math has never been pretty. A general contractor negotiates 5% retainage with the owner, then turns around and holds 10% from its subcontractors. You absorb twice the financial burden for the same project risk—at margins that typically run 3 to 10%. For most subcontractors, the retainage being withheld is most or all of their profit from the entire job, sitting idle until someone else’s punch list gets finished.
This arrangement has been around since the 1840s, originally used to ensure laborers finished projects and didn’t cut corners. The concept stuck, and so did the tendency to accept it as just part of how construction works, without much attention to what the law now actually requires.
Over the past several years, state legislatures have been steadily moving to constrain how much retainage can be withheld, how long it can be held, and—in the most significant recent reforms—whether a GC can hold a higher percentage from subcontractors than the owner holds from the GC.
More than 35 states now have some form of statutory retainage protection, and the laws passed since 2020 have been meaningfully stronger than what came before. Here’s what’s worth knowing and how to put it to work.
What the Recent Reforms Look Like
The reforms vary by state, but several passed in the past few years are worth knowing specifically.
California (effective January 1, 2026)
California’s newest retainage law is one of the most consequential in the country for subcontractors. For private works contracts entered on or after January 1, 2026, SB 61 does two things:
- It caps retainage at 5% of the contract price for each progress payment, and
- It explicitly prohibits GCs from withholding a higher percentage from subcontractors than the owner is withholding from the GC.
In other words, the double standard—5% upstream, 10% downstream—is now illegal in California on covered projects.
As an added layer of protection, failure to make timely retention payments can result in penalties of 2% per month on the amount wrongfully withheld. Furthermore, none of these statutory protections can be contractually waived. (Cal. Civ. Code §§ 8811, 8818, 8820)
New York (effective November 17, 2023)
New York’s prompt payment law now imposes clearer limits on retainage for qualifying private construction projects (generally those with an aggregate cost of $150,000 or more).
Under Article 35-E:
- Retainage is capped at 5% of the contract sum, and
- Contractors and subcontractors cannot withhold a higher percentage than the owner is withholding upstream.
Retainage must also be released within 30 days of final approval of the work, aligning payment timing more closely with project completion rather than extended closeout delays.
Proposed amendments may further restrict attempts to contract around these limits, but subcontractors should confirm current law before relying on them. (N.Y. Gen. Bus. Law §§ 756-a, 756-c)
Tennessee (effective July 1, 2020)
Tennessee has long had one of the more structured retainage frameworks, and recent updates have reinforced those protections.
- Retainage is generally capped at 5%, and
- On contracts of $500,000 or more, retained funds must be held in a separate interest-bearing escrow account.
This law applies to all construction contracts—public and private—and in certain situations, allows a subcontractor to release retainage upon substantial completion of their own scope (rather than waiting for full project closeout). Failure to comply can result in statutory damages. (Tenn. Code Ann. §§ 66-34-103, 66-34-206)
Minnesota (effective August 1, 2019)
Minnesota is often overlooked in these conversations, but its statute applies to both public and private building and construction contracts.
- Retainage is capped at 5%, and
- Its flow-down provision means that if an owner reduces retainage for the GC, the GC must pass that reduction proportionally to subcontractors.
The statute also sets firm timelines on retainage release: within 60 days of substantial completion. And once a GC receives payment, they have 10 days to get it downstream to subs.
Also worth noting is that after substantial completion, withholding is limited to amounts necessary to cover the cost of completing or correcting known work, which helps prevent retainage from being used as open-ended leverage late in the project. (Minn. Stat. § 337.10, subd. 4)
Illinois (effective June 1, 2027)
Illinois is the next state to watch, with changes coming to public construction projects in 2027.
The law includes a structured retainage framework—generally allowing up to 10% before the project reaches 50% completion, dropping to 5% thereafter—while also adding new limits on when retainage can be withheld at all. It also restricts a contractor’s ability to withhold retainage from subcontractors unless retainage is actually being withheld upstream and attributable to that subcontractor’s work.
For subs working on public work in Illinois, it’s worth factoring into contract review today. (See P.A. 104-0168.)
A Baseline Starting Point
The American Subcontractors Association published Retainage Law in the 50 States in 2018, providing a state-by-state summary of caps, release triggers, and alternative security options.¹ It’s a useful foundation, but it predates several of the reforms above, so use it as a starting point and verify the current rules in every state where you operate.
Knowing the Law Is Only Step One
These laws reflect a sustained legislative trend toward recognizing that retainage burden falls disproportionately on the sub tier. But these statutory protections don’t enforce themselves, and the law isn’t the only lever you have.
Here’s how to collect more of what you’ve earned, starting before you ever sign a contract.
1. Know the rules in every state where you operate—before the project starts.
Build a state-by-state retainage reference into your pre-contract review process the same way you’d review lien deadlines or insurance requirements.
Then, once the project is underway, use it: in states with flow-down provisions—California, Minnesota, and New York among them—a GC withholding 10% while the owner holds 5% may be a statutory violation, not just an unfair practice. If that’s happening, document the upstream retainage terms, raise the discrepancy in writing, and consult counsel if it isn’t corrected.
2. Document the date that starts the statutory clock.
Most state laws tie retainage release to substantial completion. Write down that date the moment it’s established, confirm it in writing with the GC, and treat it as the formal starting point for any statutory deadline. That one step turns a vague “we’re waiting on payment” situation into a trackable deadline.
3. Cite the statute when you follow up.
There’s a real difference between a general check-in and a written notice that states: “Per Minnesota Statute § 337.10, retainage on this project was due within 60 days of substantial completion, which occurred on [date]. That deadline has now passed.” That framing puts the GC on notice that you know the rules, you’re tracking them, and the conversation is no longer informal.
4. Know your lien rights in parallel.
Mechanic’s lien rights are the most powerful enforcement tool subcontractors have when retainage doesn’t come. They’re time-limited, triggered by specific events, and vary significantly by state. Knowing your deadlines before you need them is operational due diligence, and waiting until you’re in a dispute to figure them out is a common and costly mistake.
5. If the law isn’t already on your side, know where (and how) to push.
State law may set the floor, but it doesn’t prevent you from pushing for more in the contract itself. Here are some things subs should get in the habit of asking for when it comes to retainage:
- Ask for a 5% cap even on private projects where the law doesn’t require it.
- Push for scope-based release so your retainage isn’t tied to another trade’s punch list.
- Ask about variable rates, a structure where retainage drops from 10% to 5% at the project’s midpoint puts real dollars back in your hands while the work is still happening.
- Consider a retention bond on large, long-duration jobs. Instead of cash sitting in someone else’s account for months, you provide a surety bond as security.
None of these gets offered voluntarily, but all of them are legitimate asks.
The Bigger Picture
The retainage landscape has changed more in the past five years than in the previous 50. California’s January 2026 law is the freshest example, but it’s part of a pattern: state legislatures are increasingly willing to codify what the industry has long recognized as structurally unfair.
That’s meaningful progress. But a law you don’t know about can’t protect you, and one you know about but don’t use is just trivia. So treat these protections the way you’d treat any other contract right: know what you have, and be prepared to enforce it.
About the author:
Claire Wilson is the co-founder and COO of Siteline, a billing software for subcontractors. Previously, she was a project manager at Tishman Construction in New York City, where she worked on major projects like Hudson Yards and JP Morgan’s Corporate Headquarters. She is an active CFMA San Francisco member, serves on the Bay Area Subcontractors Association board, and has spoken at numerous regional and national construction conferences. Claire holds a BS in Civil Engineering from Bucknell University.
