Retention

Retention is a proportion of each payment withheld from a contractor or sub-contractor under a construction contract as security against defective or incomplete work. The employing party keeps the money and releases it in stages once the work is complete and any defects have been made good. It is not a penalty, and it is not a deposit held by anyone independent: in England and Wales it sits in the payer's own bank account, which is why recovering it is a collections job rather than a formality. In the United States the same mechanism is called retainage.

How much is held, and for how long

The government's 2017 consultation on cash retention describes the practice as the employing party holding a percentage, typically 5%, of the amount due for payment, and reports survey data putting the average retention held from contractors by clients at 4.8% of contract value. The same document records the custom of releasing the first half at project completion and the second after a defects liability period it describes as typically 12 to 24 months. The contract sets the actual figures, so read the retention clause rather than assuming the norm.

Retention withheld = value certified in the period x the retention percentage in the contract

1. A sub-contract is let at £180,000 with retention at 5%.
2. An interim payment is certified at £60,000, so £3,000 is withheld from it.
3. By the time the works are complete, £9,000 has been withheld in total (£180,000 x 5%).
4. Half of that, £4,500, falls due at practical completion.
5. The remaining £4,500 falls due at the end of the defects liability period, once the defects have been certified as made good.

Two dates therefore have to be diarized the moment completion is certified, and neither is triggered automatically. Release usually needs a written certificate or a written request, and a contractor who does not ask is unlikely to be reminded.

Retention reporting since April 2025

Retention practices are now a matter of public record for larger businesses. The Reporting on Payment Practices and Performance (Amendment) Regulations 2025 came into force on 1 March 2025 and apply to financial years beginning on or after 1 April 2025. Companies inside the payment practices reporting regime must publish, for their construction contracts, whether they use retention clauses at all, whether there is a standard percentage rate and what it is, whether there is a contract value below which no retention is taken, how and in what stages retention is released, and the difference between the retention they hold from their suppliers and the retention their own clients hold from them. For anyone working in the construction supply chain, that last figure is worth reading before signing.