Retention is money you have earned but cannot yet have. On most construction contracts the payer holds back a percentage of each payment as security, and getting it back can take years. For subcontractors it is one of the biggest drags on cashflow, and one of the biggest risks. Here is how it works and how to protect yours.
What retention is
Retention is a percentage, commonly 3 to 5 per cent, deducted from the value of work in each payment and held as security against defects and incomplete work. Typically it is released in two halves:
- Half at practical completion of the works.
- Half at the end of the defects liability period, often 6 to 12 months later.
Why it causes problems
- Long delays. The second release can be a year or more after you finished, and is often forgotten or disputed.
- Insolvency risk. If a party above you in the chain fails, retention money they hold can be lost.
- It is your money. Retention sits on your balance sheet as owed to you, but you cannot spend it.
How to protect your retention
- Track every release date. Diarise practical completion and the end of each defects period, and apply for release promptly.
- Know your rights. Retention release is a payment under the contract, so the Construction Act's notice rules apply, see the Construction Act explained.
- Consider a retention bond. Some contracts allow a bond instead of cash retention, so you keep the cash and the payer keeps the security.
- Chase early and in writing. Do not wait for the payer to volunteer it; they rarely will.
Retention is often the last money on a job and the hardest to collect. Treat the release dates as seriously as your invoices.