What Is Retainage in Construction? Oregon and Washington Rules, Explained

By Erik Tishenko, Modern Northwest · Published November 4, 2026

Retainage is the part of each progress payment an owner holds back until the end of a construction job, as security that the work will be finished and fixed if needed. In both Oregon and Washington, state law caps it at five percent on private construction and on public projects, and Oregon's private rule adds interest if the final payment is late. Here are the rules on each side of the river, straight from the statutes.

Summarized from the statutes listed under Sources, read November 2026. This is a plain-language guide, not legal advice; your contract and your attorney have the final word.

Building on both sides of the river? We work under both states' rules, licensed in Oregon (CCB #198582) and registered in Washington (L&I MODERNI888R7). Call (360) 326-2747.

How retainage works

Each month the contractor bills for the work done, line by line on the schedule of values. The owner pays that amount minus retainage, and the retained amount builds up over the job. The contractor usually does the same with its subcontractors. At the end, the held-back money is paid out, often in stages: reduced around substantial completion, then released with the final payment once the punch list is closed.

The point is leverage. Retainage gives the owner money in hand to finish or fix the work if something goes wrong, and gives everyone a reason to close out the job instead of walking away at 95 percent.

Oregon: the private rule in detail

ORS 701.420 covers private construction in Oregon. An owner, contractor or subcontractor may hold back not more than five percent of the contract price of the work completed. A partial payment is not acceptance of the work and does not waive defects.

When a contractor or subcontractor considers its work complete, it notifies the party it works for. That party has 15 days to accept the work or say what is still left. Interest at one percent per month then runs on the final payment, starting 30 days after the work is completed and accepted. If the party does neither within the 15 days, interest starts 30 days after the 15-day window ends.

Oregon also moves retainage down the chain. When a contractor pays a subcontractor in full, including the retainage it held, the contractor notifies the owner, and the owner has 15 days to pay the contractor that same amount out of the retainage it is holding.

Washington: the private rule in detail

RCW 60.30.010 covers private construction in Washington with the same five percent cap on the contract price of the work completed, and the same rule that a partial payment is not acceptance and does not waive defects. Interest of one percent per month runs on the final payment starting 30 days after the work is completed and accepted, until the final payment is tendered.

Public projects on each side

On Oregon public improvement contracts, an agency may hold up to five percent of each progress payment. After the job is 50 percent complete and going well, it may reduce or eliminate retainage on the contractor's written application with the surety's approval, and at 97.5 percent it may cut the amount held to the value of the work left. On larger contracts, cash retainage goes into an interest-bearing escrow.

On Washington public works, retainage of up to five percent is held as a trust fund that protects people owed money on the job and certain state taxes. At the contractor's option it is held in a fund, an interest-bearing account or escrow, and it is released 60 days after the contract work is complete, subject to the state's requirements.

What owners should know

• Five percent is a cap, not a requirement. The contract sets the actual amount and when it steps down.
• Respond to a completion notice. In Oregon, ignoring it for 15 days starts the interest clock anyway.
• Pair retainage with lien releases. Owners often ask for lien waivers from the contractor and subcontractors before releasing retainage. The lien deadlines differ by state: Oregon's is in our Oregon guide, Washington's in our Washington guide.
• Know which state you are in. A job in Vancouver follows Washington's rules, a job in Portland follows Oregon's, even when the same contractor builds both.

Related terms are in our commercial construction glossary.

Frequently asked questions

The bottom line

Retainage is money held back from each payment until the job is done. Oregon and Washington both cap it at five percent on private work, and both charge one percent a month on a late final payment once the work is completed and accepted. Read your contract for the actual percentage and the release steps, and answer completion notices on time.

Modern Northwest has built commercial projects in Oregon and Washington since 2005. Tell us about your project.