Loading...
All Business Law Guides
Construction Guide
What Is Retainage in Alabama Construction?
5 min read· Alabama Business Law · Serving AL, GA & SC
Where Is Your Dispute?
This Guide Covers Alabama. Choose Your State.
Contract deadlines and forums differ sharply in each state we serve. Read this question answered under the law of the state where your dispute sits.
Alabama
Six years on written contracts (Ala. Code § 6-2-34)
You are reading the Alabama guide
Georgia
Six years on written contracts (O.C.G.A. § 9-3-24)
Read the Georgia guide
South Carolina
Three years on written contracts (S.C. Code § 15-3-530)
Read the South Carolina guideThe Short Answer
Retainage is a portion of each construction payment that an owner or general contractor withholds until the work is substantially or fully complete, as security that the job will be finished properly. Alabama law caps how much can be held: up to 10 percent on private commercial projects (Ala. Code § 8-29-3(i)) and 5 percent on public works (Ala. Code § 39-2-12), and no further retainage may be withheld once the project is 50 percent complete. Contract terms cannot exceed these limits. 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.
Overview
Overview
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.
Why Retainage Exists
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 conditions for release are typically set by the construction contract, but Alabama caps the amount: no more than 10 percent on private commercial work (Ala. Code § 8-29-3(i)) or 5 percent on public works (Ala. Code § 39-2-12), and no additional retainage once the job is 50 percent complete. A contract that tries to withhold more than the statute allows is unenforceable to that extent.
When Retainage Should Be Released
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.
Recovering Wrongfully Withheld Retainage
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.
An Illustrative Example
An Illustrative Example
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.
Key Takeaways
Key Takeaways
Retainage is a withheld percentage of payment as completion security.
Contract terms set the percentage and release conditions.
Retainage is generally due once contractual milestones are met.
Wrongful withholding can support breach of contract claims.
Lien and bond rights may also secure unpaid retainage, mind the deadlines.
For a construction matter in Alabama
Our Birmingham and Hoover business litigators handle these disputes. Read more about our work on subcontractor payment disputes, or call to discuss the matter. The initial consultation is confidential and without charge.
Frequently Asked Questions
Frequently Asked Questions
How much retainage is typical in Alabama construction?
It is commonly around 5 to 10 percent of each payment, but the exact amount is set by the contract. Always check your specific agreement for the percentage and release terms.
When am I entitled to my retainage?
Generally when the contract's release conditions are met, often substantial or final completion. Pay-when-paid or pay-if-paid clauses can also affect when lower-tier parties get paid.
What can I do if my retainage is wrongfully withheld?
You may pursue it as a breach of contract, and lien or bond claim rights may also apply. Because those remedies have deadlines, act promptly to preserve them.
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.