Construction Progress Payments and Need for Holdbacks/Retainage

[David S.]

I am about to enter a construction contract that should take about 4-6 weeks. For the sake of argument, let’s say the contract is for $100,000. The contractor’s proposed contract plans for four progress payments...on 25% completion, 50%, 75% and 100% completion. However, it does not provide for any holdbacks/retainage from each payment.

I have heard construction lenders will hold back from each draw.

Even though I am paying in cash, should I not require some sort of holdback (5%?) from each draw to protect myself from incomplete work and unpaid subcontractors/suppliers? And how long should I hold it for?