For what reason is retainage often held back in construction contracts?

Retainage is commonly held back in construction contracts primarily to ensure project completion and satisfaction. This practice involves withholding a certain percentage of the payment until the project is fully completed and meets all quality standards. By retaining a portion of the payment, owners create an incentive for contractors to finalize the work to the owner's satisfaction and to correct any defects or issues that may arise after substantial completion. This helps protect the owner’s investment and ensures the contractor remains motivated to maintain high standards throughout the project.

In addition to ensuring quality, retainage fosters accountability and encourages contractors to resolve any outstanding work or issues promptly, contributing to a successful overall project delivery.