Retention in Construction: What It Is and Your Rights

Retention is one of the biggest cash flow issues facing UK construction subcontractors. An estimated £3.2 billion is held in retentions across the industry at any given time, and 71% of contractors report experiencing late release of retention money.

This guide explains what retention is, why it exists, and most importantly, how to make sure you get your money back.

What Is Retention in Construction?

Retention is a percentage of each payment application that the client or main contractor withholds as a form of insurance against defects. The idea is that if the subcontractor's work turns out to be defective, the client has money available to pay for repairs without having to chase the subcontractor.

Retention is deducted from the gross valuation on every interim payment application. The withheld money is released later, typically in two stages after the project is completed.

Typical Retention Percentages

In UK construction, retention is typically between 3% and 5% of the contract value. The most common rates are:

• 5% is the standard rate in most JCT and NEC contracts
• 3% is increasingly common, especially on larger projects or with established relationships
• 0% is sometimes negotiated by subcontractors with strong track records

The retention percentage is agreed in the contract before work begins. It applies to the cumulative value of work done, so the retained amount grows with each payment application.

How Retention Is Calculated

Here is a simplified example with 5% retention on a £100,000 contract:

• Application 1: Gross value £20,000. Retention held: £1,000 (5%). You receive £19,000
• Application 2: Cumulative gross £50,000. Total retention: £2,500. New retention this period: £1,500. You receive £28,500
• Final application: Cumulative gross £100,000. Total retention: £5,000. Total withheld: £5,000

That £5,000 sits with the client until the retention release dates arrive.

When Is Retention Released?

Retention is typically released in stages tied to project completion milestones:

Practical Completion (First Half)

When the project reaches practical completion, half of the retained money (50%) is usually released. Practical completion means the building is substantially complete and can be used for its intended purpose, even if minor snagging items remain.

End of Defects Liability Period (Second Half)

The remaining 50% is released at the end of the defects liability period (also called the rectification period). This is typically 6 or 12 months after practical completion. During this time, the subcontractor is responsible for fixing any defects that appear in their work.

Your Rights Regarding Retention

The Construction Act

The Construction Act gives subcontractors important rights around payment, but retention itself is not specifically regulated by the Act. However, the payment notice and pay-less notice requirements apply to retention releases. If the client fails to issue a notice when retention is due, you may be entitled to the full amount.

Trust Funds

There has been long-standing industry pressure to require clients to hold retention money in trust accounts, separate from their own funds. Currently this is not a legal requirement, which means if the client becomes insolvent, your retention money may be lost along with other unsecured debts.

Adjudication

If a client refuses to release retention when it is due, you have the right to refer the dispute to adjudication under the Construction Act. Adjudication provides a decision within 28 days, making it the fastest route to resolving retention disputes.

Common Problems with Retention

• Late release: 71% of contractors experience late retention release, tying up cash for months or years longer than contractually agreed
• Forgotten release dates: without proper tracking, retention release dates are missed, and the money sits with the client indefinitely
• Insolvency risk: if the client goes bust before releasing retention, the subcontractor may never recover the money
• Unjustified deductions: some clients deduct from retention for issues that are not genuine defects

How to Protect Your Retention Money

1. Track release dates religiously: know exactly when each retention payment is due and follow up promptly
2. Issue formal requests: put retention release requests in writing with clear references to the contract terms
3. Check the client's financial health: if you have concerns about a client's solvency, consider negotiating reduced retention or a retention bond
4. Keep detailed records: document practical completion dates, defects liability periods, and all correspondence about retention
5. Use software: tools like BuildQS automatically calculate retention and track release schedules, so nothing falls through the cracks

Frequently Asked Questions

Can I negotiate a lower retention percentage?

Yes. Retention percentage is a contractual term and can be negotiated before signing. If you have a strong track record with the client, you may be able to negotiate 3% or even 0%.

What if the client will not release my retention?

First, issue a formal written request referencing the contract terms and the due date. If the client still refuses, you can refer the dispute to adjudication under the Construction Act. The adjudicator can order payment within 28 days.

Is retention deducted before or after VAT?

Retention is calculated on the gross value of work before VAT. VAT is then applied to the net amount payable (gross value minus retention).

Can retention be held on variations?

Yes. Unless the contract states otherwise, retention applies to the full value of work including variations and scope changes.