Holding Retention
Retention is a specified percentage of invoices held back during the project. The purpose is to maintain a certain incentive during the project close out phase. It helps ensure that punch list items are properly completed.
On the typical residential renovation project, 10% is customary. Retention is withheld from each invoice or draw, so that the sum total of retention is always 5% to 10% of the total payments. For an explanation on the proper way to release retention, refer to Construction – Releasing Retention.
You can hold retention until all punch list items are complete. If the contractor fails to complete the punch list items, you can use retention to hire someone else to complete the work, after giving your current contractor the contractually required opportunity to make amends. For an explanation on how to withhold retention, refer to Construction – Denying Payment(s).
Not all projects require holding retention. In projects where there may be only one or two payments over a very short period, such as 30 to 45 days, it is more effective to withhold payment in the manner explained in Construction – Denying Payment(s), to ensure 100% completion including punch list items.