North Carolina retainage law: a plain-English guide for contractors

What is retainage in construction?

Retainage (also called retention) is the part of each progress payment the owner holds back until the work is finished. The general contractor usually passes the same percentage down to its subcontractors, so everyone in the chain has money held back.

"5% retainage" means that on a $200,000 pay application, $10,000 is withheld and $190,000 is paid. Over a long job the held amount adds up: on a $4 million subcontract at 5%, $200,000 is sitting with someone else by the end of the work. On your books it's a retainage receivable. On the GC's or owner's books it's retainage payable.

Retainage exists to give the owner leverage to get the work finished and to protect against unpaid subcontractors and suppliers filing liens. It also means contractors finance part of the project with their own earned money, often for a year or more.

North Carolina retainage caps on public work: 5%, then nothing more after 50%

North Carolina's main retainage law is G.S. 143-134.1. It covers public construction contracts let by the State or any political subdivision. Contracts let by the Department of Transportation under G.S. 136-28.1 are excluded.

• 5 percent cap. The owner can't retain more than 5 percent of any periodic payment due a prime contractor.
• No retainage under $150,000. No retainage is allowed, by the owner or the prime contractor, on public contracts where total project costs are less than $150,000. Session Law 2026-9 raised this from $100,000, effective June 19, 2026.
• Retainage stops at 50 percent. When the project is 50 percent complete, the owner, with written consent of the surety, can't retain any more from periodic payments if the contractor keeps performing satisfactorily and any nonconforming work identified in writing has been corrected and accepted.
• It can come back. If the owner decides performance has become unsatisfactory, it can reinstate retainage on later payments, up to the 5 percent maximum.
• Subs can't be held at a higher rate. A subcontract can include retainage, but the percentage can't exceed what the owner is retaining from the prime. Any excess carries interest of 1 percent a month, paid by the prime to the sub.
• A 2.5 percent hold after early releases. After 50 percent completion, the owner may withhold additional retainage from a later payment, up to 5 percent, so that it holds 2.5 percent total retainage through completion. The GC may then withhold matching retainage from subs still on the project to offset it.

Session Law 2026-9 doesn't say whether the new $150,000 threshold reaches contracts already underway on June 19, 2026, so check with counsel on older contracts.

Private projects in North Carolina

North Carolina has no statute that caps the retainage a private owner holds from its general contractor, and no statute setting a deadline for the owner to release it. That's set by the contract.

What the law does control on private work is the GC-to-sub relationship, through the prompt payment law in Chapter 22C:

• Sub retainage is capped by the owner's rate. A contractor may withhold a reasonable amount for retainage, not to exceed the initial percentage retained by the owner (G.S. 22C-4).
• Seven days to pay down. When a sub has performed under its contract, the contractor must pay the sub within seven days of receiving each periodic or final payment the full amount received for that sub's work (G.S. 22C-3). The same rule applies at each lower tier.
• Pay-if-paid is unenforceable. Payment by the owner to the contractor is not a condition precedent to paying a sub, and an agreement to the contrary is unenforceable (G.S. 22C-2).
• Residential is excluded. Chapter 22C doesn't apply to residential contractors as defined in G.S. 87-10(1a), to certain residential improvements, or to projects of 12 or fewer residential units (G.S. 22C-6).

G.S. 22C-4 also lets a contractor withhold payment for unsatisfactory progress, defective work not remedied, disputed work, third-party claims, and similar reasons. A withholding for a real dispute is treated differently from a late payment.

How long can retainage be held in North Carolina?

Who pays whom: Deadline

Public owner to prime contractor: Within 60 days after a pay request is submitted and the owner receives a certificate of substantial completion or beneficial occupancy or use, as the contract specifies. Surety consent is required. The owner may keep up to 2.5 times the estimated value of work still to be completed or corrected.

Public owner, final balance: Paid in full within 45 days after the contract is accepted, certified complete by the architect or engineer, or the project is occupied and used, whichever comes first

Early-finishing trades (public): Trades 100 percent complete by the time the project is 50 percent complete have their retainage reduced to 0.5 percent of the contract once the architect approves the work. The statute names structural steel, piling, caisson and demolition.

Contractor to subcontractor (public and private): Within 7 days after the contractor receives each periodic or final payment

Private owner to contractor: No statutory deadline. Set by the contract.

Releasing retainage doesn't start warranties early. On public work, warranties don't begin to run before the certificate of substantial completion or beneficial occupancy (G.S. 143-134.1(b4)).

Interest and late payment in North Carolina

North Carolina uses a flat 1 percent per month, or fraction of a month, for late payment. That's about 12 percent a year.

• Public final payment. If the balance due a prime isn't paid within 45 days, interest runs at 1 percent a month from day 46. No interest applies to a reasonable sum held under a conditional acceptance, or where the architect or engineer finds the delay was the contractor's fault (G.S. 143-134.1(a)).
• Public sub payments. If a prime pays a sub more than seven days after receiving payment, it owes 1 percent a month on the unpaid amount (G.S. 143-134.1(b)).
• Private sub payments. Same rate. Interest starts on the eighth day after the contractor received payment (G.S. 22C-5).

None of these statutes requires retainage to be held in a separate or interest-bearing account, and none gives the contractor the interest the held money earns while it's held. The 1 percent applies only once a payment is late.

The money involved is real. $500,000 of retainage held for 18 months earns about $28,500 at 3.7% compounded monthly. Where nothing requires otherwise, that interest usually stays with whoever holds the money.

Retainage that earns interest on North Carolina projects

North Carolina law doesn't give contractors the interest on held retainage, but a contract can. With Retain-Edge, retainage sits in a segregated, interest-bearing account at an FDIC-insured partner bank, with a balance for every contractor and the interest paid to the GCs and subcontractors who earned it. Retain-Edge administers the accounts. It never holds, lends or invests the funds, and is now enrolling pilot projects.

Get early accessCalculate your interest

Public projects in North Carolina

G.S. 143-134.1 applies to public construction contracts let by a board or governing body of the State or any political subdivision, such as counties, cities and school boards. DOT contracts under G.S. 136-28.1 are excluded and follow their own rules, so check with counsel on highway work.

On a public job, release of retainage at 50 percent and at completion requires the surety's written consent, so keep your surety informed as the job progresses. The owner can still withhold more than the statute allows for unsatisfactory progress, defective work not remedied, disputed work or third-party claims (G.S. 143-134.1(e)). A prime can likewise hold back a sub's share of a pay application for unsatisfactory job progress and similar reasons (G.S. 143-134.1(d)).

The statute doesn't contain a provision for substituting securities or a bond for retainage.

How to get retainage released faster

1. Read the retainage clause before you sign. On private work the contract is the only limit on the owner's retainage, so negotiate the percentage, a reduction point and a release deadline up front.
2. Check the dollar threshold. On public contracts with total project costs under $150,000, no retainage is allowed at any tier. Push back if it's withheld.
3. Track the 50 percent point. On public jobs, document completion and clear any written nonconforming work items so retainage stops once the project hits 50 percent.
4. Line up surety consent early. Public releases need the surety's written consent. Get the paperwork moving before substantial completion, not after.
5. Ask for early-trade release. If you're structural steel, piling, caisson or demolition and your work is done before the project is 50 percent complete, ask for the architect's approval and the reduction to 0.5 percent.
6. Count the seven days. Note the date the GC was paid. Payment to you is due within seven days, and interest at 1 percent a month starts after that.

North Carolina retainage FAQ

What is the maximum retainage in North Carolina?+

On public projects, 5 percent of any periodic payment, with no further retainage once the project is 50 percent complete if performance is satisfactory (G.S. 143-134.1). On private projects there's no statutory cap on the owner, but a contractor can't hold more from a sub than the owner's initial percentage (G.S. 22C-4).

Is retainage allowed on small public projects in North Carolina?+

No retainage is allowed on public construction contracts where total project costs are less than $150,000. That threshold was $100,000 until Session Law 2026-9 took effect on June 19, 2026.

When must retainage be released on a North Carolina public project?+

Within 60 days after a pay request is submitted and the owner receives a certificate of substantial completion or gets beneficial occupancy or use, as the contract specifies. Surety consent is required, and the owner may keep up to 2.5 times the estimated value of the work still to be completed or corrected.

How fast does a GC have to pay subs in North Carolina?+

Within seven days of receiving each periodic or final payment, on both public (G.S. 143-134.1(b)) and private (G.S. 22C-3) work. Late payments carry interest of 1 percent a month.

Can a GC hold more retainage from a sub than the owner holds from the GC?+

No. On public work the sub's percentage can't exceed the owner's, and any excess earns the sub 1 percent a month. On private work the cap is the initial percentage retained by the owner.

Is pay-if-paid enforceable in North Carolina?+

No. Under G.S. 22C-2, payment by the owner is not a condition precedent to paying a subcontractor, and an agreement saying otherwise is unenforceable. Chapter 22C excludes certain residential work.

Does North Carolina require retainage to earn interest for the contractor?+

No. North Carolina statutes don't require retainage to be held in a separate or interest-bearing account. Interest of 1 percent a month applies only to late payments and to sub retainage above the owner's rate on public jobs. Interest on held retainage has to come from the contract.

Retainage guides for other states

California5% cap · 2%/mo late penaltyConnecticut5% cap · mandatory escrowFlorida5% public cap · 2%/mo lateGeorgia5% public cap · 10-day flow-downKentucky10%/5% caps · escrow at $2M+LouisianaEscrow at $50K+ · 10%/5% publicNew York5% cap · void above itOregon5% cap · retainage bondsTennessee5% cap · escrow at $500K+Texas10% reserve · public caps