Retainage in Florida: What the B&F Exam Expects You to Know

Retainage is the part of each progress payment the owner holds back until the job is finished. It protects the owner against incomplete or defective work and unpaid subcontractors. For the contractor it is money earned but not yet collected, which is why it matters for cash flow. The Business and Finance exam tests retainage two ways: the Florida statutes that limit it, and the pay-application math.

This page summarizes what the statutes say for exam study. Retainage statutes have been amended several times, so check the current statute before relying on a percentage for a real contract.

Public projects: the 5% cap

Florida caps retainage on most public construction contracts at 5% of each progress payment.

• State-level public entities: F.S. 255.078(1) says a public entity "may withhold from each progress payment made to the contractor an amount not exceeding 5 percent of the payment as retainage."
• Local governments (counties, cities and similar): F.S. 218.735(8)(a), part of the Local Government Prompt Payment Act, uses the same 5% limit.

Both statutes also say:

• The entity may withhold less than 5%, reduce the rate on a schedule in the contract, or release retainage early.
• If the entity releases retainage that belongs to subcontractors' or suppliers' work, the contractor must pass it on to them promptly.
• The cap does not apply to contracts with a total cost of $200,000 or less.
• The cap does not apply where federal funds are involved and federal requirements conflict with the prompt payment act.
• Amounts in a good-faith written dispute do not have to be released.

No 50% step-down in the current statute

Some study materials describe a rule of 10% retainage until the job is 50% complete, then 5% after that. That is not what the current text of F.S. 255.078 or 218.735 says. Both set a flat maximum of 5% of each progress payment. A contract may still use a lower or declining schedule. If you see the 10%/50% rule in a practice question, check which version of the law it is based on.

Closeout on public jobs

After substantial completion, the contract must provide for a punch list with the estimated cost to complete each item. On projects under $10 million, the list is developed within 30 days of substantial completion. Within 20 business days after the list is developed, the entity pays the remaining contract balance, including retainage, less 150% of the estimated cost of the open items (F.S. 255.077 and 218.735(7)).

Private projects: no statutory percentage cap

For private work, Florida does not set a maximum retainage percentage. The rate is whatever the contract says. F.S. 715.12, the Construction Contract Prompt Payment Law, controls timing:

• An owner and contractor may agree to withhold a portion of each progress payment until substantial completion (715.12(7)(a)).
• The owner must pay the balance, including retainage, within 14 days after substantial completion is certified, a certificate of occupancy is issued, or the owner takes possession, and the contractor completes the punch list.
• Late retainage accrues interest at the statutory rate.
• Contractors and subcontractors may also agree to retainage down the chain (715.12(7)(b)).

A separate statute, F.S. 713.346, requires anyone who receives payment on a construction contract to pay undisputed obligations to the people who supplied labor, services or materials, and gives them remedies if those amounts go unpaid for more than 30 days. It is a payment rule, not a retainage cap.

Summary table

Worked example 1: public pay application

A county hires a contractor for a $2,400,000 building (not federally funded). The contract withholds the maximum retainage the statute allows. Through Pay Application 4, completed work totals $1,080,000. Previous payments total $760,000.

Step 1. Retainage rate. Local government, contract over $200,000: 5% maximum.

Step 2. Retainage on work to date. $1,080,000 × 5% = $54,000

Step 3. Earned less retainage. $1,080,000 − $54,000 = $1,026,000

Step 4. Less previous payments. $1,026,000 − $760,000 = $266,000

The current payment due is $266,000, and the county is holding $54,000 in retainage.

Worked example 2: private job with a contract step-down

A private owner's contract for $900,000 says 10% retainage on work until the job is 50% complete, then 5% on work after that, with the earlier retainage staying in place. The job is now 80% complete.

Step 1. Work billed to date. 80% × $900,000 = $720,000

Step 2. Split the work at the 50% point. First half: 50% × $900,000 = $450,000 Remaining work billed: $720,000 − $450,000 = $270,000

Step 3. Retainage on each part. $450,000 × 10% = $45,000 $270,000 × 5% = $13,500

Step 4. Total retainage held. $45,000 + $13,500 = $58,500

This step-down is legal here because it is a private contract term. On a public job over $200,000, the 10% portion would exceed the 5% statutory cap.

How retainage appears on the books

• The contractor records retainage the owner withholds as retainage receivable, an asset.
• Retainage the contractor withholds from its subcontractors is retainage payable, a liability.
• Large retainage balances are a common cause of tight cash flow even on profitable jobs.

Key numbers to tab in your book

• Public construction retainage cap (5%)
• $200,000 contract threshold for the retainage cap
• Federal funds exception
• Punch list and the 150% holdback at closeout
• Private retainage and the 14-day payment rule
• Retainage receivable and retainage payable

Practice pay applications

Retainage questions combine a rule with arithmetic, and the arithmetic is where points are lost. Our Florida Business and Finance Exam Prep includes original pay-application and retainage questions with each step worked out, plus 90 days of practice across the full exam. Related guides: construction lien law and percentage of completion.