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California Public Works Retention: 5% Cap and Payment Deadlines

Updated November 1, 2026. General information, not legal advice.

Retention is the share of each payment held back until the job is done. On California public works, the law limits how much can be held, sets a deadline for releasing it, and gives subcontractors a short deadline for getting their share. This guide walks through the rules in plain terms, with the statutes linked so you can check them yourself.

Quick reference

Rule Statute Limit or deadline If it is late
Retention cap PCC 7201 5% of each payment and of the contract price Cannot be waived
Agency releases retention PCC 7107(c) Within 60 days after completion 2% per month plus fees
Prime pays subs their retention PCC 7107(d) Within 7 days of receipt 2% per month plus fees
Prime pays subs progress payments B&P 7108.5; PCC 10262 and 10262.5 Within 7 days of receipt 2% per month plus fees

The 5% retention cap (PCC 7201)

Public Contract Code 7201 covers contracts entered into on or after January 1, 2012 “between a public entity and an original contractor, between an original contractor and a subcontractor, and between all subcontractors thereunder, relating to the construction of any public work of improvement.”

The core rule: “The retention proceeds withheld from any payment … shall not exceed 5 percent of the payment. In no event shall the total retention proceeds withheld exceed 5 percent of the contract price.”

Three points for subs:

  • The cap applies down the chain. A subcontract may not set a retention percentage higher than the one in the prime contract.
  • You cannot be asked to waive it. Section 7201(c) bars any requirement to waive the section.
  • A 10% retention clause in a subcontract on a California public job is a red flag. Check whether an exception applies before you sign.

Exceptions

Section 7201 allows retention above 5% only in narrow cases:

  • Unbonded subcontractors. A sub that cannot or will not provide performance and payment bonds after notice under PCC 4108(c).
  • “Substantially complex” state projects. Certain state departments listed in PCC 10106 may exceed 5% if the director finds, before the bid, that the project is substantially complex.
  • “Substantially complex” local projects. A local agency may exceed 5% after a finding, made at a properly noticed public hearing before the bid, that the project is substantially complex. The finding must explain why the project is unique.

If you see higher retention in a public works subcontract, ask the prime which exception applies and whether the finding was made before the bid.

Releasing retention: 60 days after completion (PCC 7107)

Public Contract Code 7107 applies to public works contracts entered into on or after January 1, 1993. The public entity must release retention within 60 days after the date of completion.

“Completion” is defined. Any of these counts:

  1. Occupation, beneficial use and enjoyment of the work by the public agency (not counting testing, startup or commissioning), together with cessation of labor on the work.
  2. Acceptance by the public agency.
  3. Cessation of labor for 100 continuous days, due to factors beyond the contractor’s control.
  4. Cessation of labor for 30 continuous days, if the agency records a notice of cessation or a notice of completion.

If there is a dispute, the agency may withhold up to 150% of the disputed amount. Subdivision (g) has a separate 90-day rule for certain state agency contracts, so check it if the owner is a state agency.

Write down the date completion happens. Your 60-day clock, and the prime’s 7-day clock after it, both run from dates you can prove.

Primes must pay subs their retention within 7 days

Once the original contractor receives retention, it must pay each subcontractor its share within seven days (PCC 7107(d)). In a good-faith dispute, the prime may withhold up to 150% of the disputed amount from the sub (7107(e)).

Late retention: 2% per month

Under PCC 7107(f), retention that is not paid within these deadlines carries “a charge of 2 percent per month on the improperly withheld amount, in lieu of any interest otherwise due.” In a lawsuit to collect, the prevailing party gets attorney’s fees and costs. For a sense of scale, 2% of $20,000 in held retention is $400 for each month it is improperly withheld.

Section 7107(h) makes any waiver of these rules void.

Progress payments to subs: also 7 days

Retention is not the only deadline. Progress payments have their own seven-day rule:

  • Business and Professions Code 7108.5 requires a prime or sub to pay any subcontractor “not later than seven days after receipt of each progress payment, unless otherwise agreed to in writing.” It allows withholding of up to 150% of a good-faith disputed amount, a penalty of 2% of the amount due per month, and attorney’s fees. It applies to private and public works, “except where Section 10262 of the Public Contract Code applies.”
  • Public Contract Code 10262 covers State Contract Act jobs and requires payment to subs “within seven days of receipt of each progress payment.” PCC 10262.5 adds the 150% dispute rule, the 2% monthly penalty and attorney’s fees.

Note the “unless otherwise agreed to in writing” language in 7108.5. Read your subcontract’s payment terms before you rely on the seven-day rule for progress payments.

If you have heard “10 days,” check the date of the source. The current text of each section above says seven days.

Tracking retention on your pay applications

Retention shows up on every pay application. On a G702/G703-style application, it appears as retainage on the summary page and, if the rate varies by line, in the retention column of the continuation sheet. Each month, confirm that:

  • Retention on this application is no more than 5% of the amount earned, unless an exception applies.
  • Total retention to date is no more than 5% of your contract price.
  • The amount the prime holds from you matches what your own ledger says.

Our free pay application generator calculates retainage for each line and defaults to the 5% public works cap, and our guide on how to fill out a pay application has a worked example at 5%.

When you sign lien waivers along the way, progress waivers list retention as an exception, so you are not giving it up. See California lien waivers.

A retention checklist for subs

  1. Before signing a subcontract, check the retention percentage against the 5% cap and the prime contract.
  2. Keep a retention ledger by project: amount held on each pay app and running total.
  3. Watch for completion events: agency acceptance, a recorded notice of completion, or long stoppages.
  4. Count 60 days from completion for the agency, then 7 days for the prime.
  5. When retention is late, put your request in writing and cite PCC 7107.

If chasing retention and pay apps is eating your office time, our pilot program covers pay applications, retention tracking and lien releases.

Sources

Frequently asked questions

What is the maximum retention on California public works?

5 percent. Public Contract Code 7201 says retention withheld from any payment cannot exceed 5 percent of the payment, and total retention cannot exceed 5 percent of the contract price. A subcontract cannot use a higher percentage than the prime contract. Limited exceptions exist.

How long does a prime have to pay a sub its retention on a public job?

Seven days. Public Contract Code 7107(d) requires the original contractor to pay each subcontractor its share within seven days of receiving retention from the public entity.

When does the public agency have to release retention?

Within 60 days after the date of completion under Public Contract Code 7107(c). Completion can be acceptance by the agency, occupation and beneficial use with labor stopped, or certain periods of stopped work.

What is the penalty for late retention payments?

A charge of 2 percent per month on the improperly withheld amount, in place of interest, plus attorney's fees and costs to the prevailing party in a lawsuit (Public Contract Code 7107(f)).

Is it 7 days or 10 days to pay subcontractors in California?

The current text of Business and Professions Code 7108.5, Public Contract Code 10262 and Public Contract Code 7107(d) all say seven days. If you see 10 days cited, check the source's date.