Indiana retainage law: 6% or 3% on public work, 61-day payment (2026)
By Oussama Chicha, EditorUpdated Checked against primary sources · not yet reviewed by a licensed professionalFact-checked
Quick answer
On an Indiana local public work contract over $200,000, IC 36-1-12-14 gives the board two choices: withhold no more than 6% of completed work until the job is 50% complete and nothing after, or no more than 3% until substantial completion. State agencies use the same options under IC 5-16-5.5-3.5. Payment is due within 61 days after substantial completion. The statutes cover public work only, not private jobs.
Private work
Indiana · Private workVerified 2026-09-29
Retainage cap
Not in our verified record
Deadline
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Statute
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Public work
Indiana · Public workVerified 2026-09-29
Retainage cap
6%
Ind. Code § 36-1-12-14(c): on local public work contracts over $200,000 the board withholds either no more than 6% of the value of work satisfactorily completed until the work is 50% complete and nothing further after that, or no more than 3% until the work is substantially complete. State agencies choose between the same two options under IC 5-16-5.5-3.5. Both were set by P.L. 28-2025 (before that, 10% and 5%). At the contractor's option retainage is held by the board or placed in an escrow account, and the board owes no interest on retainage it holds.
Deadline
61 days
Substantial completion of the public work; an amount equal to 200% of the value of each uncompleted minor item may be held until the item is finished.
To determine the amount of retainage to be withheld, the board shall: (1) withhold no more than six percent (6%) of the dollar value of all work satisfactorily completed until the public work is fifty percent (50%) completed, and nothing further after that; or (2) withhold no more than three percent (3%) of the dollar value of all work satisfactorily completed until the public work is substantially completed.
Indiana's retainage limits are written for public work. Two sections carry them:
Local public work. IC 36-1-12-14 applies to local public work contracts over $200,000 [3], other than highways, roads, streets, alleys, bridges and structures on streets, alleys and dedicated highway rights-of-way, and speaks to the board that awards them [3].
State agencies. IC 5-16-5.5-3.5 gives state agencies the same two options [4].
Private construction is not addressed by either section. This page covers public work only; for a private job, the contract and a lawyer supply the answer.
What the rule says
The board chooses between two methods of retainage, each with its own ceiling and its own end point [3].
Option one. No more than 6% [3] of the dollar value of all work satisfactorily completed, until the public work is 50% [3] complete, and nothing further after that.
Option two. No more than 3% [3] of the dollar value of all work satisfactorily completed, until the public work is substantially complete.
Under the first option the holdback stops growing at the halfway point. Under the second the ceiling is lower but runs until substantial completion.
Where the money sits is up to the contractor: the board holds it, or it goes into an escrow account [3]. The board owes no interest on retainage it holds itself [3].
After substantial completion, the board or escrow agent pays the contractor within 61 days [3], subject to sections 11 and 12 of the chapter [3]. An amount equal to 200% [3] of the value of each uncompleted minor item may be held back until that item is finished.
How to comply
Find the option in the contract. Look for which of the two methods the retainage clause of a covered public contract uses, then compare its percentage with 6% [3] or 3% [3] accordingly.
Decide where the retainage is held. The escrow option is the contractor's choice [3]. On retainage the board holds itself, the board owes no interest [3].
Date substantial completion. The 61 days [3] run from that date. Keep a list of uncompleted minor items; the holdback for them is capped at 200% [3] of their value.
State agency work. Read the contract against IC 5-16-5.5-3.5, which offers the same 6% or 3% choice [4].
This is a description of the statutes, not a ruling on any contract. The code sections in the Sources below, the contract and a lawyer decide how they apply to a particular project.
What changed recently
The 6% and 3% options took effect on July 1, 2025 [1], under P.L. 28-2025 [4]. They replaced earlier limits of 10% and 5% [2].
Related
Retainage calculator: compare the two options in dollars on your contract value.
