# Construction closeout retainage and final funding

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Status: Published
Publisher: Jaken Finance Group

Construction closeout requires at least three reconciliations: what the contractor has earned but not received, what the lender has not funded, and what work or other obligations remain. These balances often overlap, but they are not interchangeable. A contractor's right to payment can arrive before the lender's release conditions are satisfied. An undrawn loan balance is not automatically cash the owner may distribute.

[AIA's A102–2017 instructions](https://help.aiacontracts.com/hc/en-us/articles/1500009828181-instructions-a102-2017-standard-form-of-agreement-between-owner-and-contractor-where-the-basis-of-payment-is-the-cost-of-the-work-plus-a-fee-wi), Article 12, address specified retainage terms and final-payment review. Separately, Section 3.7 of a [historical SEC-filed construction loan](https://www.sec.gov/Archives/edgar/data/885508/000088550822000039/exhibit101constructionloan.htm) conditions lender retainage release on several forms of completion evidence. Neither source establishes a nationwide release percentage or calendar. The executed contracts, loan documents and applicable law control the actual project.

## Give every retained dollar an obligation ID

Consider an invented project with a $4 million construction contract. Certified earned work is $3.9 million; $100,000 remains unperformed. The owner has paid $3.51 million, leaving $390,000 retained from earned work. The contractor's total remaining potential payment is $490,000: $390,000 already earned plus $100,000 not yet earned.

The lender has a $500,000 undrawn allocation for that contract. A separate $40,000 owner consultant invoice is unpaid and is not eligible for that allocation. The owner has $60,000 unrestricted cash.

| Ledger | Amount | What it represents | What it does not prove |
|---|---:|---|---|
| Earned contractor retention | $390,000 | Certified work not yet paid | That lender release is authorized |
| Unperformed contract work | $100,000 | Remaining scope at contract price | That the contractor has earned payment |
| Undrawn contract allocation | $500,000 | Conditional loan capacity | An unrestricted owner cash asset |
| Separate consultant obligation | $40,000 | Additional unpaid cost | An eligible contract draw |
| Unrestricted owner cash | $60,000 | Available funding source | Additional loan proceeds |

Remaining sources of $560,000 exceed obligations of $530,000 by $30,000. That is a funding-capacity cushion, not a distributable cash balance. If the lender funds only $490,000 of eligible remaining contract cost and cancels the unused $10,000 allocation, actual owner cash after paying the consultant is $20,000. The $10,000 cancellation reduces potential borrowing; it does not increase cash.

## Test the release order

Assume the contractor is entitled under the hypothetical agreed payment schedule to $300,000 of retained money on day 10. The lender will release that portion only on day 30 after its specified evidence is accepted. The consultant must receive $40,000 on day 5.

The owner begins with $60,000, pays the consultant, and has $20,000 available for the day-10 contractor payment. The temporary funding gap is $280,000. An expected day-30 draw does not meet the day-10 obligation. The owner must arrange an approved payment change, a timely lender release or a separate liquidity source before the payment becomes due.

Suppose a temporary owner advance supplies $280,000 and the lender reimburses the full $300,000 on day 30. Repaying that advance leaves $20,000. Later draws of $190,000 pay the remaining $90,000 retention and $100,000 newly earned work. The owner still ends with $20,000 before temporary financing costs. Releasing retention earlier changes the cash timing, not the contractor's total earned amount.

## Prevent four closeout double counts

First, do not put the $390,000 earned retention inside the $100,000 unperformed cost if the estimate is explicitly for unfinished work only. Conversely, if a consultant's “cost to complete” includes unpaid earned amounts, do not add retention again. Label the estimate's scope.

Second, do not count both an undrawn lender holdback and the cash expected from drawing it as simultaneous sources. They are two states of one source. Third, do not count a paid owner advance as an unpaid contractor cost after reimbursement; reconcile the obligation and the funding source separately. Fourth, do not classify a canceled commitment as savings received in the bank account.

Use obligation IDs that survive status changes. For example, retention item R-07 can move from earned/unpaid to owner-paid to lender-reimbursed. Its invoice should appear once in total project cost throughout the sequence. Attach the payment evidence and reimbursement reference to the same item.

## Define who can close each condition

The architect or inspector may certify physical work; counsel and the title team address lien and release matters; the lender authorizes advances; and the owner verifies amounts actually paid. No single “project complete” email performs all four functions.

A final closeout packet should reconcile the final contract amount, approved change orders, paid amounts, unpaid earned work, unperformed work, disputed claims, available loan allocations and unrestricted cash. Add the evidence needed for each remaining release, its acceptance owner and the contract payment due date. The practical decision is whether all obligations can be paid when due, even if no more borrowing becomes available. Only then can the team assess whether any residual cash is eligible for distribution.


## Source references
- [AIA Contract Documents — A102–2017 instructions](https://help.aiacontracts.com/hc/en-us/articles/1500009828181-instructions-a102-2017-standard-form-of-agreement-between-owner-and-contractor-where-the-basis-of-payment-is-the-cost-of-the-work-plus-a-fee-wi) — Articles 4, 5 and 12: time, GMP, allowances, assumptions and payments; Exhibit A: insurance and bonds · Checked 2026-10-21 · Instructions for a specific licensed AIA form; executed modifications and applicable law govern. No copyrighted form language is reproduced.
- [SEC-filed Saint George Apartments construction loan agreement](https://www.sec.gov/Archives/edgar/data/885508/000088550822000039/exhibit101constructionloan.htm) — Extension conditions; Section 3.7 Retainage; Section 3.9 Interest/Operating Reserve · Checked 2026-10-21 · Source date / context Executed July 19, 2022; historical single transaction · One Texas construction agreement illustrates separate completion, financial, release and reserve conditions. No percentage, waiting period or extension right is generalized.