Retention is your money, held by someone else, often longer than the contract allows. Here's how it works, your rights, and how to make sure you get it back.
I once chased a retention payment for fourteen months after it was due. Fourteen months. The contract said it should be released within 28 days of the defects certificate. The client's accounts department had a different view, which was essentially: we'll pay it when we get around to it.
That was £47,000. For a small contractor, that's not a rounding error — it's the difference between a profitable year and a cash flow crisis.
Retention is one of the most misunderstood and poorly managed aspects of construction contracts. Contractors accept it as a fact of life without really understanding the mechanics, the risks, or their rights. And clients — some of them — exploit that lack of understanding.
Retention is a percentage deducted from each interim payment, held by the employer as security against defective work. The standard arrangement under JCT contracts is:
During the works: The employer retains a percentage (typically 3% or 5%) of the gross valuation at each interim payment. So if your interim valuation is £100,000 and retention is 5%, you receive £95,000.
At practical completion: Half the retention is released. So if the total retention held is £60,000, you receive £30,000 when PC is certified.
At the end of the defects liability period: The remaining half is released once the certificate of making good has been issued — confirming that all defects notified during the DLP have been remedied.
Simple enough on paper. The problems start when you look at how it works in practice.
Late release at practical completion. The contract says half the retention is released at PC. In reality, many employers take weeks or months to process the payment. Some don't release it until the final account is agreed — which isn't what the contract says at all.
Defects used as leverage. The employer's team identifies a list of defects during the DLP and holds the entire remaining retention until every item is resolved. This can be reasonable if the defects are significant. But I've seen retention withheld over a stiff door closer and a scuffed skirting board — items worth £200 being used to hold £25,000.
Insolvency risk. Here's the one that keeps me up at night. Retention money sits in the employer's general bank account. It's not ring-fenced. It's not held in trust (unless the contract specifically requires it, which most don't). If the employer goes into administration, your retention money goes into the general pot with every other unsecured creditor. You might get 10p in the pound. You might get nothing.
This isn't theoretical. It happens. The Specialist Engineering Contractors Group estimated that the UK construction industry loses over £700 million a year in unpaid retention. That figure includes losses from employer insolvency, late payment, and retention that's simply never released.
Cascade failures. Main contractors deduct retention from subcontractors. But what if the client hasn't paid the main contractor's retention? The subcontractor's money is stuck. And if the main contractor goes bust in the meantime, the subcontractor loses out — even though the defects liability period is long past and the work was perfectly fine.
Right to payment. Retention isn't a gift to the employer. It's your money, held as security. The release dates are contractual obligations, and late release is a breach of contract. You're entitled to interest on late payment under the Late Payment of Commercial Debts (Interest) Act 1998.
Right to information. Under the JCT, the employer must state the retention deducted in each interim certificate. You should be able to reconcile the retention held against your cumulative valuations. If you can't, ask for a breakdown.
Right to a retention bond. You can negotiate a retention bond instead of cash retention. The employer gets the same security (they can call on the bond if you don't remedy defects) but your cash stays in your bank account. The cost of a retention bond is typically 1-2% of the bond value per year — well worth it for larger contracts.
Right to adjudicate. If retention isn't released when it should be, you can refer it to adjudication. Retention disputes are usually straightforward — the question is simply whether the conditions for release have been met.
Track it from day one. Know exactly how much retention is being held on every project, when each tranche is due for release, and whether the payment has been received. This sounds obvious, but most small contractors I know couldn't tell you their total retention exposure across all live projects without digging through files for an hour.
Claim it immediately. The day practical completion is certified, submit your formal request for release of the first half of retention. Don't wait for the employer to remember. Don't bundle it with the next payment application. Send a standalone written request referencing the PC certificate and the contract clause.
Chase it persistently. If it's not paid within the contract period, send a chasing letter. Then another. Then a formal letter referencing your intention to refer the matter to adjudication if not resolved within 14 days. Many employers pay at this point — the cost of adjudication isn't worth it over retention money they know they owe.
Negotiate retention terms at tender. This is the time to push back on retention. Can you negotiate 3% instead of 5%? Can you agree a retention bond? Can you include a clause requiring retention to be held in a separate account? The best time to negotiate these terms is before you sign the contract, not after you've been chasing payment for six months.
Keep the defects liability period clean. The fastest way to get your final retention released is to manage defects proactively. Attend to defects callbacks promptly. Keep records of what was reported and what was resolved. Don't give the employer a reason to withhold.
The construction industry's retention system is broken. It was designed as a reasonable security mechanism. In practice, it's become an interest-free loan from contractors to employers, with a significant risk of total loss through insolvency. Campaign groups and industry bodies have been pushing for reform — including mandatory retention deposit schemes — for years.
Until that reform arrives, the only protection is diligence. Know what you're owed, when it's due, and chase it the moment it's late.
In Construction AI, the financial module tracks retention across all your projects — deductions, release dates, amounts outstanding. It flags when retention is due for release and gives you a single view of your total retention exposure. Because £47,000 held for fourteen months isn't someone else's money. It's yours.
Stephen Mckenna MCIOB
30+ years in UK commercial construction, from site management to director level. Now building the project management tools he wished he'd had.
Tier-one contractor processes shouldn't only be available to tier-one contractors. Drawing registers, document control, RFIs, programmes, financial tracking — built for how you actually run projects, priced so any construction business can access them. Get started today.
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