Options for Withholding Retainage

For public works contracts in the State of Washington, there are four options for how retainage is withheld by public agencies, at the option of the contractor.

1. Held by the public agency. The public agency deducts the 5% from each progress payment and holds the retainage in its own non-interest bearing account.
   
   
2. Invested by the public agency in an interest bearing account in the public agency's name. The contractor earns interest on this account.
   
   
3. Placed in escrow with a bank or trust company by the public agency under a three party agreement between the bank or trust company, the public agency, and the contractor. The contractor pays any fees directly to the bank or trust company who agrees not to release the funds until authorized by the public agency.
   
   
4. Retainage bond submitted by the contractor. Under this option, the public agency pays the contractor 100% of each progress payment. The bonding company promises to pay any valid claim filed against the retainage, thus enabling the public agency to pay the contractor their retainage on an ongoing basis.

Retainage is set at 5% of the amount earned by the contractor (not including sales tax) and is established as a trust fund for the protection of workers, subcontractors, and suppliers, in addition to the State Department of Revenue for payment of taxes.

For more information about these options, refer to RCW 60.28.011.