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 some security in the event that defects are not properly rectified.
When is retention released?
When retention is released will depend on the wording of the contract in question. Typically, 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.
Retention that I am owed has not been paid. What can I do?
The first step is to check what your contract says. Have the events which trigger the release of retention occurred? It may be that there is in fact no retention provision at all, which means that the other party has no right to hold retention.
The next step is to get your paperwork in order so that you can clearly evidence what retention is held, how much should be paid, and 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. 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.
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?
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, with a bond being 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 in respect of a retention bond.
Free initial enquiry
All initial enquiries from new clients are free of charge, so please do not hesitate to contact us by phone, email or using our contact form for a free initial consultation to discuss how we can help you in relation to retention.
