What is retention on a public works contract?

It is a percentage of each progress payment the public agency holds back rather than paying you, as security that you will finish the work and correct defects. It accumulates over the job and is released after completion.

What does Pub. Contract Code §22300 let me do?

It gives you the right, at your request and your expense, to have securities substituted for the money the agency is withholding — or to have the retention paid into escrow instead. The agency does not get to refuse. You then receive the retained funds, and the securities or escrowed amount stand in their place.

Who pays for substituting securities?

You do. The statute puts the cost on the contractor, which is why it is worth doing on large or long jobs where the retained amount is significant, and usually not worth the trouble on small ones.

Does substituting securities replace my performance bond?

No. It is a separate mechanism dealing only with retained payments. Your bid, performance, and payment bonds are unaffected, and the agency keeps all its rights under them.

When does retention have to be released?

California sets a deadline for releasing retention after completion of a public works contract under Pub. Contract Code §7107, with exceptions for genuinely disputed amounts. Check the section and your contract, because the pass-through rules to subcontractors have their own timing.

Do subcontractors have the same right?

Subcontractor retention is generally handled through the prime contract and the subcontract, not directly with the agency. A sub who wants relief usually has to work through the prime. Read the subcontract's retention clause first.

Retention on California Public Works, and Substituting Securities

California public works, by the numbers

10%: Minimum bid security on California public works; CA Public Contract Code
$400: Annual California DIR public works contractor registration fee; CA DIR
~290,000: Licensed California contractors, across 44 classifications; CSLB, 2025
$150,000: Federal contract size that requires performance and payment bonds; Acquisition.gov (FAR 28.102)

What retention is and why it hurts

On a public works contract the agency pays you progressively as the work goes in, but holds back a slice of every payment. That held-back money is retention. It is the agency's security that you will finish, fix the punch list, and correct defects — and it accumulates across the whole job.

The percentage is set by the contract, and California limits it on many public works contracts under Pub. Contract Code §7201, with exceptions for projects the agency finds substantially complex. Check your own contract rather than assuming a number, because the exceptions are real and the rules for passing retention down to subcontractors are separate.

Whatever the percentage, the effect on a contractor is the same: on a long job, a meaningful amount of your earned money is unavailable for months after you spent the cash to earn it. That is working capital, and working capital is the number your surety underwrites your bonding capacity from. Retention sitting with an agency does not help your balance sheet the way cash does.

The right most contractors do not use

Pub. Contract Code §22300of the California Public Contract Code addresses exactly this. In substance, it gives the contractor two options at the contractor's request and expense:

Substitute securities equivalent to the amount being withheld. The securities are deposited with the agency, or with a qualifying bank acting as escrow agent, and the retained money is paid to you.
Have retention paid into escrow instead of being held by the agency, with the escrow agent holding it under an agreement among the agency, you, and the escrow agent.

The important part is that this is a right, not a favour. A public agency subject to the section does not get to decline the request because it would rather hold the cash. The statutory scheme also contemplates that you receive the interest earned on securities or escrowed funds — which is the whole economic point.

When it is worth doing

Substitution is not free, and the paperwork is not nothing. It earns its keep when:

The retained amount is large. A percentage of a multi-million-dollar contract is real money; a percentage of a small one may not cover the cost of setting it up.
The job runs long. The longer the money is held, the more the carrying cost matters.
You are running several bonded jobs at once. Retention across a full backlog compounds, and it is often the hidden reason a contractor feels cash-poor while looking profitable on paper.
Working capital is the constraint on your program. If an underwriter has told you working capital is what is capping your single and aggregate limits, freeing retention is a direct lever on the number they are looking at.

It is usually not worth it on short jobs, small contracts, or where the agency is already close to releasing.

How to actually do it

Read the contract first.Public works contracts subject to the section typically contain the statutory substitution language already. Find that clause — it tells you the agency's procedure.
Decide which route. Securities substitution, or escrow. Escrow is administratively simpler for many contractors; securities suit those who already hold qualifying instruments.
Make the request in writing, early. Ideally at or near award, not eighteen months in when most of the retention has already accrued.
Line up the escrow agent. The statute contemplates a qualifying bank; your own bank may or may not do this work, so ask before you commit to a date.
Tell your surety. Not because they have to approve it, but because a contractor who has freed up retention has a different working capital picture, and that is a conversation worth having at renewal.

What it does not change

Substitution deals with retained payments and nothing else. Your performance bond and payment bond stay exactly as they are, and the agency keeps every right it has under them. Nor does it accelerate closeout: the agency still releases at completion under Pub. Contract Code §7107, and you will still need a consent of surety to final payment (AIA G707 on AIA-form jobs) before the last money moves.

If retention is the reason you are turning down the next public job, the fix may be either this statute or a bigger program. Read how to bid public works in California for the front end of the process, or start a contract bond quote. This is general information about California public contracting, not legal advice — read your contract and get counsel on a specific job. Underwriting always applies and we never promise guaranteed approval.