Arizona retainage law: 10% public cap, 60-day release (2026)
By Oussama Chicha, EditorUpdated Checked against primary sources · not yet reviewed by a licensed professionalFact-checked
Quick answer
Arizona public contracts retain 10% (A.R.S. § 41-2576 for the state, § 34-221 for counties, cities and school districts), cut to 5% of later payments after 50% completion if progress is satisfactory, and pay retention within 60 days after final completion and acceptance. Private owners may hold a reasonable amount with no percentage cap and pay within 7 days after the release billing is approved (A.R.S. § 32-1182).
Private work
Arizona · Private workVerified 2026-09-22
Retainage cap
No percentage cap. A.R.S. § 32-1182(D): 'The owner may withhold from a progress payment a reasonable amount for retention.' When retention is released the owner may withhold from it not more than 150 percent of the direct costs and expenses the owner reasonably expects to incur because of the contractor's failure to complete portions of the work (§ 32-1182(H)(2)). An owner may contract for different definitions of 'retention', 'substantial completion' and 'final completion' and different release timing only by the conspicuous plan-sheet legends prescribed in § 32-1182(U)-(W). NOTE: these provisions were formerly numbered A.R.S. §§ 32-1129 to 32-1129.07; the current Arizona Revised Statutes listing places them at §§ 32-1181 to 32-1188.
Deadline
7 days
On substantial completion the contractor submits a billing or estimate for release of retention. It is deemed certified and approved 14 days after the owner receives it unless the owner issues a written statement of reasons; the owner must then pay the retention within 7 days after certification and approval. Where a portion of the contract has a separately stated price, release is billed per portion on its own substantial completion.
The owner may withhold from a progress payment a reasonable amount for retention. … On substantial completion of the work, a contractor shall submit a billing or estimate for release of retention. … the owner shall pay the retention to the contractor within seven days after the date the billing or estimate for release of retention is certified and approved.
A.R.S. § 32-1182 (formerly § 32-1129.01). · Official text · retrieved 2026-09-22
Public work
Arizona · Public workVerified 2026-09-22
Retainage cap
10%
State contracts (A.R.S. § 41-2576(A)-(B)): 10 percent of all construction contract payments retained; at 50 percent completion one-half of the amount retained is paid on the contractor's request if progress is satisfactory, and thereafter no more than 5 percent of subsequent progress payments may be retained; 10 percent retention is reinstated if progress becomes unsatisfactory. There is no retention for job-order-contracting contracts, and the purchasing agency may elect none for CM-at-risk and design-build (§ 41-2576(E)). Contracts let by 'agents' (counties, cities, school districts and other political subdivisions) under A.R.S. § 34-221(C)(2)-(5) follow the same 10% → 5% pattern.
Deadline
60 days
Any retention must be paid, or substitute security returned, within 60 days after final completion and acceptance of the work under the contract. Holding retention longer than 60 days requires a specific written finding by the purchasing agency of the reasons justifying the delay, and no more may be held than is necessary to cover the expenses identified in that finding.
Ten per cent of all construction contract payments shall be retained by this state as insurance of proper performance of the contract or, at the option of the contractor, a substitute security may be provided by the contractor in an authorized form pursuant to rules adopted by the director.
A.R.S. § 41-2576 (state); A.R.S. § 34-221 (political subdivisions and other 'agents'). · Official text · retrieved 2026-09-22
Who this applies to
Arizona regulates retainage on both sides, through three sets of sections.
Private work. The owner-to-contractor rules sit in A.R.S. §§ 32-1181 to 32-1188 [1]; the retention section itself, § 32-1182, was formerly § 32-1129.01 [2]. They also run down the chain: § 32-1183 governs what a contractor or subcontractor owes the tier below it [3].
State contracts. Construction contracts let by the state follow A.R.S. § 41-2576 [4].
Counties, cities and school districts. These and other political subdivisions, which the statute calls agents, follow A.R.S. § 34-221 and its matching 10%-to-5% pattern [5].
Under § 41-2576, three delivery methods work differently: job-order-contracting contracts carry no retention, and on construction-manager-at-risk and design-build contracts the purchasing agency may elect to hold none [4].
What the rule says
The two markets run on opposite logic. A private owner may keep back a reasonable amount from each progress payment, with no percentage written into the statute [2], but once the work is substantially complete it has to pay on a short, fixed timetable. A public owner starts from a set rate: 10% of every construction contract payment [4], falling to at most 5% of later payments once the job is half done and progress is satisfactory [4]. It also has a longer window: 60 days after final completion and acceptance [4].
How to comply
Private job: the release sequence
At substantial completion, send the owner a billing or estimate for release of retention. A portion of the contract with its own stated price is billed separately, on that portion's substantial completion.
Count 14 days [2] from the owner's receipt. Unless the owner has issued a written statement of reasons by then, the billing is deemed certified and approved.
The retention is due within 7 days [2] after that approval. Late payment carries interest of 1.5% a month [2] on the unpaid balance, or a higher rate if the contract sets one, and the party that wins a lawsuit or arbitration recovers costs and reasonable attorney fees.
At release, the owner may still hold up to 150% [2] of the direct costs and expenses it reasonably expects to incur because the contractor left portions of the work incomplete.
Two more points apply to private contracts. The plan sheets matter: an owner can change the statute's definitions of retention, substantial completion and final completion, or its release timing, only through the conspicuous legends § 32-1182 prescribes [2]. And retention moves down the chain on a clock too: a contractor or subcontractor that holds up a release owed to a lower tier for more than 7 days owes 1.5% per month from the eighth day [3].
Public contract: rate, reduction, release
Retention runs at 10% [4] of each payment unless the contractor opts to provide substitute security in a form the director's rules authorize.
When the contract is 50% complete and progress is satisfactory, the contractor can request payment of half of what has been retained, or half of the substituted securities [4]. After that, no more than 5% of each later progress payment may be kept, and the rate returns to 10% if the owner finds satisfactory progress is not being made [4].
Retention is paid, or substitute security returned, within 60 days [4] after final completion and acceptance. Holding it longer requires the purchasing agency's specific written finding of the reasons, and only what covers the expenses named in that finding may stay back.
On a county, city or school district job, read the contract against § 34-221, which carries the same 10% rate, release of half at 50% completion, 5% afterward, 60-day payment and securities option [5].
Related
Retainage calculator: model a public contract's rate change at the halfway point, or a private owner's hold, on a pay application.
