What is the primary purpose of retainage in a construction contract?

The primary purpose of retainage in a construction contract is to ensure the completion of the remaining work. Retainage refers to a percentage of the payment that is withheld by the client or project owner until the project is finished to their satisfaction. This practice serves as a financial incentive for contractors to complete all aspects of the work thoroughly and on schedule. By holding back a portion of the payment, owners can motivate contractors to focus on completing the project correctly, addressing any deficiencies, and ensuring compliance with all specifications and requirements. This practice also protects owners from the risk of incomplete or unsatisfactory work, as the retained funds can cover the costs of hiring another contractor to finish the job if necessary.

While other factors such as timely payments and contractor morale might be influenced indirectly by retainage, they are not the primary focus. Instead, the main goal is to guarantee that the contractor fulfills their obligations fully before receiving the entirety of the agreed-upon compensation.