Retainage

Retainage is a portion of each construction payment withheld by the owner (or by an upper-tier contractor from a subcontractor) until project completion. Retainage serves dual purposes: (1) ensuring the contractor or subcontractor's continued performance through final completion; and (2) providing a fund from which lien claims and final-completion items can be paid. Texas law requires owners to reserve 10% of the contract price, or of the value of work done, during the work and for 30 days after the work is completed. House Bill 2237 (effective January 1, 2022) reformed the terminology, what was previously called "statutory retainage" is now "reserved funds," and "retainage" now refers only to contractual retainage held within the contracting chain.

Owner's reserved funds obligation (post-HB 2237)

Section 53.101 requires the owner of property being improved to retain 10% of the contract price (or value of the work performed if no contract price) during the progress of the work. The reserved funds must be held for 30 days after the work under the original contract is completed, providing a window during which subcontractors can perfect lien claims against the reserved funds before they are released to the original contractor.

Owner's liability for failure to reserve

If the owner fails to reserve the required funds, § 53.105 gives complying claimants a lien on the improvements and land at least to the extent of the amount that should have been reserved, shared proportionately under § 53.104. Separately, § 53.057(f) makes the owner personally liable for the reserved funds to a retainage claimant who gives the required notices and files timely, and § 53.084(b) makes the owner liable for payments made to the original contractor after a notice authorized withholding, once the lien is secured and the claim reduced to final judgment.

Contractual retainage

"Contractual retainage" refers to amounts withheld within the contracting chain, typically 10% withheld by the original contractor from each progress payment to subcontractors, and similar withholdings down the chain. These are governed by the underlying contract, not by § 53.101. Subcontractors claiming a lien for contractual retainage must serve a § 53.057 notice and meet the retainage-specific lien-filing deadline (15th day of the third month after the month in which the original contract was completed, terminated, or abandoned), which can differ from the general lien-filing deadline.

Release timing

Reserved funds are released to the original contractor at the end of the 30-day post-completion window, assuming no perfected lien claims against the funds. Contractual retainage is released according to the underlying subcontract terms, typically tied to substantial completion of the subcontractor's work plus delivery of close-out items (warranties, as-built drawings, lien releases). Texas law does not cap contractual retainage on private projects. On public works, a governmental entity generally may withhold no more than 10% (5% on contracts of $5 million or more), and a prime contractor may not withhold a greater percentage from its subcontractors (Tex. Gov't Code § 2252.032).

Common disputes

Recurring retainage disputes include: (1) whether substantial completion has occurred and triggered reduction; (2) whether final completion has occurred and triggered release; (3) whether the contractor has cured punch-list items entitling release; (4) whether subcontractor lien claims against retainage are valid; (5) interaction between reserved funds release and outstanding lien claims; (6) whether retainage was wrongfully withheld (potentially triggering Prompt Payment Act interest).