What is the purpose of Retainage?

• A. To accelerate cash flow
• B. To fund bonuses
• C. To protect the owner from mis-estimation of value
• D. To reduce taxes

Answer: (C)

Retainage is a holdback of a portion of each payment to the contractor. Its purpose is to protect the owner from mis-estimation of value by ensuring there are funds available to cover issues that may arise if the work is overvalued, not completed, or deficient. Withheld funds give the owner leverage to ensure proper performance, fix any deficiencies, and adjust for any errors in the initial valuation. It’s not meant to speed up cash flow, fund bonuses, or reduce taxes.