Texas Construction Retainage Release Rules

By Hank FasthoffJuly 5, 2026

Retainage turns the last piece of the job into payment pressure. You may have finished the work, paid your crews, paid suppliers, and submitted the final pay application, but the last 5% or 10% can wait above you in the payment chain while the project closes out.

Texas law separates retainage into different buckets. On private projects, an owner has a statutory reserved funds obligation under Chapter 53. Your contract may also create contractual retainage between an owner and contractor or between a contractor and subcontractor. On public projects, Government Code § 2252.032 sets caps, flow-down limits, and release rules.

Those buckets shouldn't get blended together. The deadline to claim reserved funds differs from the deadline to claim contractual retainage. Public project retainage has statutory percentage caps that private project retainage often lacks. A final lien waiver can release retainage even when a progress waiver wouldn't.

Private Project Reserved Funds

On a private Texas project where a mechanic's lien may be claimed, Property Code § 53.101 requires the owner to reserve 10% of the contract price during the progress of the work and for 30 days after the work under the contract is completed. If the contract has no fixed price, the owner must reserve 10% of the value of the work performed.

Chapter 53 now calls that statutory holdback reserved funds. Reserved funds secure payment for artisans, mechanics, and others who furnish labor, materials, labor and materials, or specially fabricated materials for the work. The owner's obligation exists even if the owner's contract with the original contractor uses different retainage language.

If the owner pays the original contractor in full without reserving the statutory 10%, compliant claimants can pursue the amount the owner should have reserved. Property Code § 53.105 provides claimants who comply with the lien statute a lien, at least to the extent of the amount that should have been reserved.

A reserved funds claim has a short fuse. Under § 53.103, a claimant has a lien on the reserved funds if the claimant sends the required notices and files a lien affidavit by the 30th day after the earliest of completion of the work, termination of the original contract, or abandonment by the original contractor. Section 53.057(f) can extend that result for a claimant who gives the statutory retainage notice, files by the applicable § 53.052 affidavit deadline, and sends the § 53.055 copy of the filed affidavit. A claimant who satisfies § 53.057(f) has a lien on the reserved funds, and the owner is personally liable to the claimant for them.

Contractual Retainage

Contractual retainage is different. Chapter 53 defines retainage as an amount representing part of a contract payment that isn't required to be paid within the month after the month in which labor is performed, material is furnished, or specially fabricated material is delivered.

If your subcontract says the contractor retains 10% from each progress payment, that's contractual retainage. Section 53.025 limits a retainage lien to the amount specified to be retained in the contract, including amendments, between the claimant and the original contractor or between the claimant and a subcontractor.

A derivative claimant whose contract provides for retainage must pay special attention to § 53.057. To the extent the unpaid retainage claim wasn't included wholly or partly in a regular § 53.056 notice, the claimant must send a notice of claim for unpaid retainage to the owner or reputed owner and the original contractor. The deadline is the earlier of the 30th day after the claimant's contract is completed, terminated, or abandoned, or the 30th day after the original contract is terminated or abandoned.

That notice requirement makes retainage easy to lose. A subcontractor may send monthly notices for unpaid progress work and file a lien on that work, but a separate contractual retainage claim can fail if the § 53.057 notice was missed.

Public Project Retainage

Public work follows a different statute. Government Code § 2252.032 caps retainage based on the value and type of public works contract, and the subchapter generally applies only to public works contracts with a total price of $400,000 or more, estimated at the time of contract execution. Contracts made by the Texas Department of Transportation under Transportation Code Chapter 223 fall outside the subchapter.

For covered public works contracts under $5 million, the governmental entity may not withhold more than 10% of the contract price, and the retainage rate may not exceed 10% for any item in a bid schedule or schedule of values. For contracts of $5 million or more, both caps drop to 5%. Dam construction and maintenance contracts can use a 10% cap regardless of contract value.

Public project retainage also flows downstream by percentage. A prime contractor can't withhold a greater percentage from a subcontractor than the governmental entity withholds from the prime. A subcontractor can't withhold a greater percentage from a lower-tier subcontractor than the percentage withheld from the subcontractor.

For competitively awarded contracts worth $10 million or more, and for contracts awarded through a method other than competitive bidding, the governmental entity and prime contractor may agree to deposit retained funds in an interest-bearing account. That language is permissive for those contracts. A separate subsection covers certain entities receiving Water Code financial assistance approved before September 1, 2019, which must deposit retainage in an interest-bearing account when the contract provides for retainage exceeding 5% of periodic contract payments.

Release After Completion

On private projects, Chapter 28 supplies the prompt payment framework. When an owner receives a written payment request from a contractor for an amount allowed under the contract for properly performed work or suitably stored or specially fabricated materials, the owner must pay by the 35th day after receipt, minus amounts the statute allows the owner to withhold. Contractors and subcontractors must pass through the proper share of payment to the next tier by the seventh day after receipt.

Private project retainage release depends first on the contract. Chapter 28 then affects timing once the retained amount becomes payable under the contract and a proper payment request is submitted. Interest accrues at 1.5% per month on an unpaid amount required under Chapter 28, starting the day after payment becomes due.

Good faith disputes limit what may be withheld. For a detached single-family residence, duplex, triplex, or quadruplex, the disputing party may withhold no more than 110% of the difference between the amount claimed and the amount the disputing party says is owed. For other private real property projects, the cap is 100% of the difference.

Public projects have a more specific retainage release rule. Government Code § 2252.032 prohibits a governmental entity from withholding retainage after completion of the work required to be performed under the contract by the prime contractor, including during the warranty period. A governmental entity also can't use retainage after completion to force the prime contractor to perform work on manufactured goods or systems that the designer of record specified and the contractor properly installed.

A governmental entity may withhold retainage on an application for final payment and release if a bona fide dispute exists. The dispute must concern whether labor, services, or materials provided by the prime contractor, or by a person under the prime contractor's direction or control, failed to comply with the "express terms" of the contract. Withholding is also allowed when the surety on an outstanding bond declines to agree to the release. The governmental entity must give the prime contractor written notice stating the basis for withholding.

HB 3005 added a public project audit rule effective September 1, 2025 for contracts entered into on or after that date. Under Government Code § 2251.002(c), a bona fide dispute for a public work construction contract doesn't include an audit of the project that continues for more than 60 days after substantial completion. An earlier version of the bill would have added the same rule to Chapter 28 for private projects, but that amendment didn't survive, so the enrolled law applies to public projects only.

Lien Waivers and Retainage

Texas statutory lien waiver forms treat progress payments and final payments differently. The progress payment forms in Property Code § 53.284 exclude unpaid retention, pending modifications and changes, and other items furnished. A proper progress waiver therefore shouldn't release unpaid retainage.

Final payment waivers are different. The final payment forms cover the final payment for all labor, services, equipment, or materials furnished. If you sign an unconditional final waiver before you've been paid in good and sufficient funds, you may release the lien rights that secured the retainage.

You should match the waiver to the money. A conditional progress waiver fits a progress payment. A conditional final waiver fits a final payment that includes retainage, but it becomes effective only when the check is paid by the bank on which it's drawn. An unconditional final waiver should wait until you've received good and sufficient funds for the full final payment.

Payment Bonds on Private Projects

A Chapter 53 payment bond can change the owner's reserved funds exposure. Under § 53.201, an original contractor with a written contract with the owner may furnish at any time a bond for the benefit of claimants. If a valid bond is filed, a claimant may not file suit against the owner or the owner's property, and the owner is relieved of obligations under the fund trapping and reserved funds subchapters.

Section 53.202 sets the bond requirements. It must be in a penal sum at least equal to the total of the original contract amount, favor the owner, include the owner's written approval endorsed on it, use a corporate surety authorized and admitted in Texas, and be conditioned on prompt payment for all labor, subcontracts, materials, specially fabricated materials, and normal and usual extras not exceeding 15% of the contract price. The bond and the contract must be filed with the county clerk under § 53.203.

For owners, a valid Chapter 53 bond can replace the need to reserve 10%. For subcontractors and suppliers, the bond becomes the recovery target instead of the owner's property or reserved funds.

What You Should Calendar

You should identify the type of retainage before the first payment application. Private reserved funds, subcontract retainage, public project retainage, and bond-backed claims use different statutes and deadlines.

If you're a subcontractor on a private project, you should calendar the monthly § 53.056 notice deadline for unpaid work and the § 53.057 retainage notice deadline if your contract provides for retainage. You should also calendar the reserved funds affidavit deadline tied to completion, termination, or abandonment of the original contract.

If you're on a public project, you should compare the retainage percentage in your subcontract against the percentage withheld from the prime. A downstream percentage above the upstream percentage creates a statutory problem under § 2252.032(d).

Before signing a final waiver, you should confirm that the payment includes all retainage and that you've been paid in good and sufficient funds if the waiver is unconditional. Retainage is often the last money on the project. It shouldn't be the first right you release.