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5 min read · Alabama Business Law · Birmingham & Hoover
Retainage is a portion of each construction payment, often around 5 to 10 percent, that an owner or general contractor withholds until the work is substantially or fully complete, as security that the job will be finished properly. In Alabama, retainage terms are typically governed by the contract. When retainage is wrongfully withheld after the conditions for release are met, the contractor or subcontractor may pursue payment through breach of contract claims and, where applicable, lien rights.
Retainage is a normal part of construction finance, but it is also a frequent source of disputes, especially for subcontractors who have completed their work and are waiting to be paid the amounts held back.
This guide explains what retainage is, why it exists, and what to do when it is not released in Alabama. It is educational and not legal advice on your contract.
Retainage gives the paying party leverage to ensure the project is completed correctly. By holding back a percentage of each payment, an owner or general contractor retains a financial incentive for the contractor to finish the work and address punch-list items.
The percentage and the conditions for release are typically set by the construction contract, so the agreement is the starting point for any retainage question.
Retainage is generally due once the contractual milestones are met, often substantial completion, final completion, or acceptance, depending on the contract terms. Lower-tier parties may also depend on 'pay-when-paid' or 'pay-if-paid' provisions affecting timing.
Disputes commonly arise when the work is done but payment is delayed, or when the paying party claims defects justify continued withholding. Documenting completion carefully strengthens a claim for release.
When retainage is withheld after the conditions for release are satisfied, the unpaid party can pursue it as a breach of contract. Depending on timing and the type of project, mechanic's lien or bond claim rights may also be available to secure payment.
Because lien and notice deadlines can be strict, a subcontractor waiting on retainage should track those dates closely to avoid losing valuable remedies.
A Birmingham subcontractor completes its scope of work, but the general contractor keeps holding 10 percent retainage long after the project reached substantial completion.
Retainage is generally due once the contract's release conditions are met, and wrongful withholding can support a breach claim, plus possible lien or bond rights. Because those remedies carry strict deadlines, the sub should track them closely rather than wait indefinitely.
This scenario is a simplified, illustrative hypothetical to explain how the law generally works. It is not a real case and is not a prediction or guarantee of any particular outcome.
Our Birmingham and Hoover business litigators handle these matters every day. Learn how we can help with subcontractor payment disputes, or call for a free, confidential consultation.
This guide is provided for general educational purposes only and does not constitute legal advice or create an attorney-client relationship. Alabama law and its application depend on the specific facts of your situation and can change over time. For advice about your matter, speak with a licensed Alabama attorney.