Retainage on a pay application: how it's calculated and where it goes wrong
The short answer: retainage is the share of each payment the owner or GC holds back until the work is substantially complete, set by the contract, commonly 10% (sometimes reducing to 5% or 0% after 50% completion, and capped by statute on public work in many states). On an AIA G702 it lives on Line 5: retainage on completed work, Line 5a = rate x (Column D + E), plus retainage on stored material, Line 5b = rate x Column F. Line 5 = 5a + 5b. Total earned, Line 6, is Line 4 minus Line 5. The current payment due, Line 8, is Line 6 minus what was already certified, Line 7. A retainage error never stops at retainage: because Lines 6 through 9 all subtract from it, the wrong rate or the wrong base changes the actual dollar amount of the check.
The math on the form
With a fixed contract rate, 5a applies that rate to completed work: the D + E base across the schedule. 5b applies it to materials presently stored: the F base. Line 5 is their sum. Line 6 is total completed and stored (Line 4) minus Line 5. Line 8 is Line 6 minus what was already certified (Line 7). Every step is checkable arithmetic with no judgment involved, and the bases tie back to the G703’s columns exactly. That dependency cuts both ways. When the sum of Column G does not equal Line 4, the schedule and the certificate disagree about the base itself, so start with what to do when the certificate and continuation sheet do not tie at all: a retainage rate applied to a disputed base cannot be verified.
Where it gets less simple
Contracts vary the rate three ways: reducing retainage, per-line retainage on some custom forms, and different rates for work versus stored materials. Reducing retainage means 10% until the project is 50% complete, then 5% or zero on further work. Many states cap retainage on public work by statute. The form’s arithmetic holds whichever regime applies. The contract decides only the rate and the bases.
Where it goes wrong on real pay apps
The failures receivers actually see:
- The rate applied to the wrong base: this period’s work only, instead of the cumulative base.
- Stored materials skipped in 5b.
- The reduction applied to the whole base when the contract steps it only for later work.
- A stale percentage carried over from last month’s spreadsheet.
- 5a + 5b not equaling Line 5.
Each one shifts Line 8, the check, by the same dollar amount. That is why a reviewer’s checklist re-computes the whole chain instead of trusting any single line, and why retainage is one of the classic rejection causes.
Checking it in seconds
Every step is deterministic, so the whole chain is verifiable. PayAppCheck recomputes 5a/5b from the declared rate and the schedule’s bases. It then checks 5a + 5b = Line 5, Line 6 = Line 4 − Line 5, and Line 8 = Line 6 − Line 7, to the cent. Each mismatch is flagged with the expected figure and the dollar delta.
Questions people ask
10% is the most common rate on private work, set by the contract rather than by the form. Many contracts reduce it to 5% or 0% once the project passes 50% completion, applying the lower rate to later work. On public work, many states cap the rate by statute, so the contract and the statute both matter. Whatever the rate, the arithmetic on the G702 is fixed: 5a = rate x completed work, 5b = rate x stored material, Line 5 = 5a + 5b.
Yes, when the contract withholds on stored materials: Line 5b = rate x Column F, the materials presently stored on the continuation sheet. Some contracts set a different rate for stored material than for completed work, and some withhold nothing on it, so read the retainage clause before flagging. Skipping 5b entirely while Column F carries a balance is one of the most common retainage errors receivers see.
The contract controls release. The common patterns are a reduction at 50% completion, release at substantial completion, and final release with the closeout application, and statutes set deadlines on public work in many states. On the form, a release appears as Line 5 dropping, which raises Line 6 and flows straight into the payment due on Line 8. Check a release application the same way as any other: recompute 5a and 5b at the new rate against the same bases.
Applying the rate to the wrong base: this period’s work alone (Column E) instead of the cumulative completed work (Column D + E). That understates Line 5, overstates Line 6, and inflates the payment due on Line 8 by the full difference. The runner-up is skipping stored materials in 5b while Column F carries a balance. Both are caught by recomputing 5a and 5b from the declared rate and the continuation sheet’s bases.
Upload a pay application and the full retainage chain (bases, rate, Lines 5 through 9) is recomputed and checked to the cent.
Try PayAppCheck freeNo card required. The free tier is the trial.PayAppCheck is software, not a law or accounting firm. Not legal, accounting or tax advice. Verify lien, notarization, and retainage requirements against your contract, your state statute, and your accountant.