Retainage

What retainage protects

During a capital project, your contractor periodically submits an application for payment, a request to be paid for work completed so far, and the architect (if one is involved) certifies that the amount is actually owed before the association pays it.

"convenient and complete forms on which the contractor can apply for payment and the architect can certify that payment is due"

Source: Instructions, G702 Application and Certificate for Payment, American Institute of Architects

Retainage is a line on that same application: a percentage of the amount otherwise due that the association holds back rather than pays out. If the contractor walks off the job, does substandard work, or never squares up with a subcontractor, that held-back money is what the board has to work with to fix it.

The percentage is not a fixed number

How much gets withheld, five percent, ten percent, or something else, is set by the construction contract your board signs and, in some states, by statute. No single percentage holds nationwide. Check the retainage clause in your own contract and ask whether your state's retainage or prompt payment statute sets a rule your contract must follow, and confirm with the association's attorney before assuming a number.

Levelset's guide to prompt payment laws is a reasonable place to start looking state by state, though it is a practitioner resource, not the statute itself.

Release usually comes in two steps

Retainage typically is not released all at once. It tracks a milestone in the project, not a calendar date.

"was developed to establish the date of Substantial Completion for the purpose of commencement of applicable warranties and to allow the Owner to occupy or utilize the Work"

Source: Instructions, G704 Certificate of Substantial Completion, American Institute of Architects

A board can generally expect a first release tied to substantial completion, the point where the project is usable even though a punch list of smaller items remains, and a final release once those items are closed out. Exactly how much releases at each step, and how long the contractor waits for it, is set by your contract and, in some states, by statute, not by one industry rule. Read the retainage clause before the board signs, not after work is already underway.