Recovering Withheld Construction Retention

The money held until the end — and often beyond

Retention exists to give the owner security that the work will be finished and corrected. The problem is that it is frequently held long past the point where any legitimate reason remains, leaving contractors and subcontractors waiting on money they earned months earlier. Because retention is withheld from every payment, the accumulated sum at closeout can be the largest single piece of a project’s profit.

California treats wrongful retention withholding the same way it treats other late payments — with a two-percent-per-month penalty and prevailing-party attorney’s fees — so a retention fight carries real teeth.

The narrow good-faith-dispute exception

A party may withhold retention only where there is a good-faith dispute directly related to that retention — for example, a genuine question about whether the work for which the retention is security was properly completed. The California Supreme Court has made clear that a dispute over unrelated extra work or additional sums does not justify holding retention everyone agrees is owed. Holding back undisputed retention because of a separate disagreement can itself be wrongful.

New for 2026: the 5 percent retention cap

A recent California law (SB 61) caps retention on private works of improvement at 5 percent for contracts entered into on or after January 1, 2026, applied uniformly at every tier — a significant change from the long-standing 10 percent norm. The cap is designed to keep cash moving through the construction chain, and it gives contractors and subcontractors a new basis to challenge excessive withholding on qualifying new contracts.

Statutes and authority

Owner to contractor retention: Civ. Code § 8812 (45 days). Contractor to sub: § 8814 (10 days). Penalty and fees: § 8818. 5% private-works cap (2026): § 8811 (SB 61). Narrow dispute exception: United Riggers & Erectors, Inc. v. Coast Iron & Steel Co. (2018) 4 Cal.5th 1082.

How Stone LLP recovers retention

Stone LLP pursues withheld retention with the prompt-payment penalty and fee statutes, the underlying contract claim, and the lien or bond where they apply. The firm has represented California businesses for 45 years from Irvine, Century City, and San Jose, with a focus on substantial commercial and private-works disputes.

Call 949-477-9100

Frequently asked questions

When must retention be released in California?

On private work, generally within 45 days after completion from the owner to the direct contractor, and within 10 days from a direct contractor down to its subcontractors after the contractor receives it.

What is the penalty for withholding retention?

Wrongful withholding triggers a 2%-per-month penalty on the withheld amount, plus reasonable attorney’s fees and costs to the prevailing party in a collection action.

Can retention be withheld if there is a dispute?

Only for a good-faith dispute directly related to the retention itself, and only up to 150 percent of the disputed amount. A dispute over unrelated extra work does not justify holding undisputed retention.

What does the 2026 retention cap (SB 61) do?

For private-works contracts entered into on or after January 1, 2026, it caps retention at 5 percent, applied uniformly at every tier, down from the traditional 10 percent.

My retention is months overdue. What can I do?

You may have a prompt-payment penalty claim plus contract and lien or bond remedies. Stone LLP can assess the deadlines and leverage in your situation. Call 949-477-9100.