Retention in construction contracts

20 August 2024

What is retention, when is it due and how to claim it

Retention is frequently the source of payment disputes between parties, resulting in arguments over how much is due, whether it is due to be paid, and arguments about defects and other contra charges.

Often claims for retention will be ignored entirely and some main contractors employ other sharp practices in an attempt to hold on to retention monies. CCC has assisted many companies overcome these issues and recover retentions that they are owed.

What is retention?

Retention is a sum of money (usually 3% or 5%) that is deducted from interim payments and held by the paying party.

The purpose of retention is to ensure that work is properly executed and to encourage the completion of any defects, as well as provide security if the defects are not properly rectified.

When is retention released?

When retention is released will depend on the wording of the contract in question.

Often the first half of the retention will be released at practical completion and the second half will be released at the end of a defects period, which is usually 12 or 24 months after practical completion.

What if there is no retention clause in a construction contract?

Sometimes you will go to a contract to check when money held as retention is due to be released and will find that there is no retention clause. If there is no retention clause at all then the other party is unlikely to have any entitlement to hold retention.

How to claim retention

The first step in claiming payment of retention is to check what your contract says. Have the events which trigger the release of retention occurred?

The next step is to get your paperwork in order so that you can clearly evidence:

  1. what retention is held,
  2. how much should be paid, and
  3. that the events which cause the release of retention have occurred.

You should then write to the other party explaining that the criteria for the release of retention have been met and claiming the amount due.

Even once you have followed those steps you may find that payment is not forthcoming:

  • Arguments about contra charges and defects will often be raised.
  • Sometimes defects claims are not in fact defects claims at all but arise because a party wants something other than that which it is entitled to under the relevant contract.
  • Often parties just do not want to pay. Formal proceedings such as adjudication may be required.

We can help, just as we have helped many companies successfully recover the retention monies they are owed.

Retention bonds in construction contracts

We are increasingly seeing the use of retention bonds to avoid problems associated with recovery of retention. Amounts that would have been held as retention are instead paid as the project progresses and a bond is provided to the paying party to secure the amount.

The benefit of a retention bond to a party’s cashflow and avoiding difficulties in being paid retention may well be worth the premium paid for a retention bond.

I am about to sign a contract. What can I do to try and avoid problems with retention in the future?

Before signing up to a contract, make sure that you are clear on:

  • What amount of money is to be held as retention.
  • What events trigger the release of retention. Are they events which are sufficiently certain? Are they events within your control or the control of others? Are the timescales appropriate?
  • Is it clear what happens to the retention in the event of termination?

Free initial enquiry

Our experienced consultants have helped recover retention on many occasions.

We offer a one hour free initial consultation for new clients, so please do not hesitate to contact us by phone, email or using our contact form to discuss how we can help you in relation to retention.

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