Four things change, and one of them can close a company that was making money the week before. You get paid in arrears instead of up front. Between 5% and 10% of every approved payment is held back - California capped private retainage at 5% for contracts signed on or after January 1, 2026, and New York has held the same ceiling since November 2023. Somebody wants a bond, which on federal work over $150,000 is required rather than negotiable. And the paperwork is billable labor you have never had to price. Siteline's May 2026 survey of 492 construction finance people found 43% of subcontractors waiting more than 90 days for final payment and retainage. Put the carry in the bid.
How much later do you actually get paid on commercial work?
Assume the first dollar arrives 45 to 60 days after you start spending, and the last dollar three to six months after you finish. Residential pays you to show up. Commercial pays you for work already installed, after the general contractor has been paid by the owner, less a slice held until the whole building is done.
| Point in the job | Residential remodel | Commercial subcontract |
|---|---|---|
| Before work starts | You take a deposit | Nothing. You mobilize on your own money |
| During the work | You bill when the draw schedule says so | One pay application a month, on the GC's cutoff date |
| What each payment covers | The work you just did | Work installed through the cutoff, less retainage |
| Final payment | At completion | After closeout documents are accepted |
| Retainage | None | Released last, often long after the job |
That same Siteline survey found 92% of subcontractors floated payroll out of their own pocket during the year, and 43% waiting past 90 days for final payment and retainage against 15% of general contractors. The gap between those two numbers is the story. The GC is not slow because he is dishonest. He is downstream of an owner and upstream of you, and the delay lands where the least leverage is.
Two things about the monthly cycle that nobody tells you before your first one.
The cutoff is a wall, not a guideline. Most GCs close pay applications somewhere around the 25th for work through month end. Miss it by a day and you are not paid five days late. You are paid a month late, because the next window is the next month.
A rejected application does not get fixed and paid. Send it up without the conditional waiver from your supplier, or with a line that is not on the schedule of values, and it comes back. It then re-enters at the next cycle. One missing PDF costs thirty days, and it is the most common way a first commercial job turns into a cash emergency.
Run the arithmetic on your own job before you sign. On a $400,000 subcontract with 5% held, $20,000 of money you have already earned is sitting with someone else. If you net 8% on that job, you made $32,000 and you are waiting on two-thirds of it, while payroll goes out every Friday. That carry has a price, and it belongs in the number the same way your overhead per hour does.
What is retainage, and how much can they hold?
A fixed percentage withheld from every approved payment until the job closes out. Five percent is the statutory ceiling in a growing number of states. Ten is still normal where nothing caps it.
| Where | Cap on private work | Applies to |
|---|---|---|
| California, contracts signed on or after Jan 1, 2026 | 5%, cannot be waived by contract; 2% monthly penalty plus attorneys' fees on violations | Private works of improvement, excluding residential projects that are not mixed-use and are four stories or under |
| New York, since Nov 17, 2023 | 5%, released within 30 days of final approval, 1% per month interest if late | Private commercial contracts of $150,000 or more |
| States with no private-works cap | Whatever the contract says | Everything |
Read the California row again, because it is the cleanest illustration of the difference you are crossing. The residential work you have been doing for years is carved out. Commercial work is where the legislature decided somebody needed protecting. For a California remodeler, the first commercial contract is also the first time a statute puts a ceiling on what a customer may hold.
Both caps are ceilings, not defaults. A GC who is allowed to hold 5% will hold 5%. What you can negotiate is the release: retainage reduced at substantial completion, or dropped to 2.5% once your scope is signed off rather than once the building is. Ask at the contract stage, in writing, before you have any leverage problems. Asking in month six reads as a company in trouble.
One more thing worth noticing. Over the twelve months to September 2026, US search interest in "retainage" averaged 9 on Google Trends' relative index while "commercial construction bid" sat at essentially zero, and the top related queries were "what is retainage" and "retainage in construction." People are looking this up after they have signed something. Look it up first.
What does a bond cost, and can you get one?
Two to three percent of the contract on a typical small-contractor performance and payment bond, plus the time to get approved at all. The bond is credit, not insurance. The surety is underwriting your balance sheet and your history, and it can simply decline.
Where bonds become mandatory is written down. FAR 28.102-1 requires a performance bond and a payment bond on federal construction contracts over $150,000. Between $35,000 and $150,000, the contracting officer selects two or more alternative forms of payment protection instead - a payment bond, an irrevocable letter of credit, an escrow agreement. Private owners set their own rules, and plenty of large GCs will bond a sub they do not know yet.
If you cannot get bonded on your own numbers, the SBA guarantee exists for exactly this. SBA backs bid bonds, and performance and payment bonds, through participating sureties on contracts up to $9 million - up to $14 million on federal contracts. The fee to the small business is 0.6% of the contract price on performance and payment bond guarantees. Bid bond guarantees carry no fee.
Here is the position: start the bonding conversation before you bid, not after you are the low number. Underwriting wants CPA-prepared financial statements, a work-in-progress schedule, a personal guarantee. Assembling that takes weeks the first time. Contractors lose their first commercial award by winning it and then discovering they cannot produce a bond inside the ten days the invitation allows.
What goes into a commercial bid that never goes into a residential one?
Administration, priced as labor. On residential you absorb it. On commercial it is large enough that absorbing it is the difference between an 8% job and a 2% one.
| Line | What triggers it | What it costs you |
|---|---|---|
| Prevailing wage | Public work over $2,000 under Davis-Bacon and Related Acts | Your wage rate stops being your wage rate; fringes are owed on top |
| Certified payroll | Same trigger | Form WH-347 every week, per employee, with a signed statement of compliance carrying penalties under 18 U.S.C. 1001 |
| Monthly pay application | Nearly every commercial GC | Someone in your office billing against a schedule of values, once a month, correctly |
| Lien waivers | Every payment | Conditional with the application, unconditional after the check clears, plus chasing your suppliers for theirs |
| Insurance endorsements | The subcontract | Additional insured, waiver of subrogation, limits above what you carry today |
| Closeout package | Substantial completion | O&M manuals, as-builts, warranty letters - and retainage does not move until they are accepted |
The schedule of values is the real estimating change, and it is the one residential habits fight hardest. You break the contract into billable lines before the job starts, and from then on you can only bill lines that exist. Find unforeseen work in week three and you do not simply add it to the next invoice the way you would on a kitchen. You write it up, price it, and wait for it to be approved, which puts change orders on the critical path of getting paid rather than merely on the path of getting paid more.
Which is also why the walkthrough matters more here, not less. A missed line on a residential job costs you that line. A missed line on a commercial job costs you that line plus a change order cycle plus, sometimes, thirty days.
What this misses
"Commercial" is at least three businesses. Private tenant improvement is not public work under Davis-Bacon, and neither is industrial or institutional. TI is closest to what you already do and the sensible first step. Public work brings certified payroll, and a job whose administrative load a two-person office feels immediately.
State law moves, and it moved this year. The California cap applies only to contracts signed on or after January 1, 2026, and New York's only at $150,000 and above. Plenty of states cap nothing on private work. Check yours, and check the version in front of you rather than a summary written three years ago.
Bond pricing here is a range, not a quote. Rates move with contract size and with whose financial statements the surety is reading. Treat 2-3% as a placeholder until a broker gives you a real number, and ask about it early enough that the answer can still change what you bid.
None of this is legal advice. Retainage statutes carry exceptions - California's cap does not apply where a subcontractor was told at bidding that a bond would be required and then failed to furnish one. Read the subcontract, all of it, before the first pay cycle teaches you what is in it.
The estimating problem underneath all of this is the one you already have, only more expensive: everything you will ever be allowed to bill has to be caught while you are standing in the building. BidWalk captures scope on site by voice, so the schedule of values you sign is the scope you actually walked. And work out what the deposit you are used to was really paying for, because on this job it is not there.
