Retention Release in Construction: How BuildQS Handles It

You are a main contractor working on a construction project. Every time you submit a payment application, your client holds back a percentage of what you have earned, typically 5%. This is called retention. Over the course of a project, that retained amount builds up. On a £400,000 contract at 5%, that is £20,000 sitting in your client’s bank account rather than yours.

At certain milestones, you are entitled to get some or all of that money back. This is retention release, and how you handle it on your valuations directly affects your cash flow. If you are not tracking it properly, you could be leaving thousands of pounds on the table.

This guide explains what retention release means, when it happens, and how BuildQS makes it easy to manage on your payment applications. If you are new to retention altogether, start with our complete guide to retention in construction.

What is retention and why do clients hold it back?

Retention is a percentage of each payment that your client withholds as a form of insurance. If something goes wrong with the work, defects appear after handover, or you do not finish the job, the client has money set aside to cover the cost of putting it right.

It is standard practice across virtually all UK construction contracts, whether you are working under JCT, NEC, or a bespoke agreement. The typical rate is between 3% and 5%.

Retention is not a penalty. It is a safeguard, and both sides benefit from getting it right. As a main contractor, you need to understand how it accumulates and, just as importantly, how and when you get it back.

When does retention get released?

Retention is normally released in two stages, tied to key project milestones:

• Practical completion (typically 50% released) — This is the point where the building is substantially complete and can be used for its intended purpose. At this stage, half of the retention that has been accumulating throughout the project is released back to you.
• End of defects liability period (remaining 50%) — This is usually 6 to 12 months after practical completion. During this time, you are contractually obliged to come back and fix any defects. Once the period ends and any snagging has been dealt with, the remaining retention is released.

Other scenarios are also possible. You might negotiate an early release with your client, or the contract might specify different release terms. Some clients agree to reduce or waive retention for trusted contractors with a strong track record.

What does retention refund mean on a payment application?

When it is time to release retention, it needs to appear as a line on your next payment application. This is the retention refund. It represents money that was previously held back, now being returned to you.

Without this line, your valuation would not account for the cash flowing back, and you would understate what you are owed. The retention refund is how you formally claim back accumulated retention on a specific application.

Here is a worked example to show how it works in practice:

• Applications 1 to 4: You complete £80,000 of work. At 5% retention, £4,000 has been held back across these applications.
• Application 5 (practical completion): You set a 50% retention refund. BuildQS calculates 50% of the £4,000 balance = £2,000 released back to you on this application.
• Final application: You set a 100% retention refund on the remaining balance. The last £2,000 is released.

The retention refund percentage tells the system what proportion of the accumulated retention balance to release. It is always calculated against the total retention held from all previous applications, not just the current one.

Why does this matter for your cash flow?

5% does not sound like much until you add it up. On a £500,000 contract, that is £25,000. At practical completion, getting £12,500 back could be the difference between paying your subcontractors on time or asking them to wait.

A 2018 government survey found that 71% of contractors experienced delays in receiving retention, with some losing it entirely due to upstream insolvency. The average loss was £79,900 per contractor.

Tracking retention and claiming it promptly is not optional. It is essential for your business. If you are still managing this in spreadsheets, it is easy to forget a release date or miscalculate the balance. That is money you have already earned sitting unclaimed.

How BuildQS handles retention release

In BuildQS, each payment application has a retention settings panel. When you reach a milestone like practical completion, you open the retention settings on the relevant application and set the retention refund percentage.

• Set 50% for practical completion (releases half the accumulated retention).
• Set 100% for the final account (releases everything remaining).

BuildQS automatically calculates the exact refund amount based on the accumulated retention balance from all your previous applications. No spreadsheet formulas required. The refund appears as a separate line in your valuation summary, and it is included in the amount due calculation.

If there is no accumulated retention from previous applications (for example, on your first application), the refund field is automatically disabled. This prevents you from accidentally setting a value that would have no effect.

Retention refund vs changing the retention rate

This is a common point of confusion. They solve different problems:

• Changing the retention rate (e.g., from 5% to 3%): this affects how much retention is deducted on future applications. Use this when the contract terms change, for example a negotiated reduction after a milestone.
• Retention refund: this gets back money that has already been held. Use this when it is time to release accumulated retention, for example at practical completion or end of defects.

You might use both on the same project. For instance, at practical completion you might refund 50% of the accumulated retention and also reduce the ongoing rate to 0% for remaining work. In BuildQS, these are separate settings on each application, so you have full control.

Frequently asked questions

Can I set a retention refund on my first payment application?

No. On your first application, there is no previously accumulated retention to refund. BuildQS recognises this and disables the refund field automatically. The refund becomes available from your second application onwards, once retention has started building up.

What happens if I set the refund to 100%?

All previously accumulated retention is released back to you on that application. This is typically done on the final application after the defects liability period ends.

Does the retention refund appear on the payment certificate?

Yes. It shows as a separate line in the valuation summary, increasing the net amount due to you on that application. It is also included in PDF exports and Xero invoice exports.

What if my client does not release the retention on time?

You have legal protections under the Construction Act. Payment dates for retention release should be specified in your contract. If they are not, the Act provides default mechanisms. For more on your rights, see our guide to retention in construction.

If you are new to retention in construction and want to understand the fundamentals, read our complete guide to retention in construction. BuildQS is built specifically for UK construction contractors who want to replace spreadsheet valuations with something faster and more reliable.