Retention: meaning in UK construction

Retention is a percentage of each interim payment withheld by the client as security that the contractor will finish the work and put right defects. Typically three to five per cent, released in two stages.

The logic is straightforward: the client keeps something back so the contractor has a financial reason to return and finish properly. The difficulty is what it does to a contractor’s cash position, and what happens when the release never gets chased.

How it releases

Half at practical completion. Certification triggers it.

The balance on the certificate of making good, issued once the defects liability period has ended and any listed defects have been rectified.

Both depend on somebody issuing a certificate. Neither happens automatically, and that is the root of the problem.

Why so much is never collected

By the time the second release falls due, twelve months or more have passed since completion. The project team has dispersed. The contract administrator has moved on. The commercial person who knew the number has left or is buried in live jobs.

Nobody issues the certificate because nobody asks for it. The retention sits on a client’s balance sheet, and a year later somebody writes it off as not worth the chase. Across a portfolio of projects this quietly amounts to real money, and it is money already earned, on which the cost has already been incurred.

The second risk is insolvency. Retention is an unsecured debt. If the party holding it fails, it ranks with other unsecured creditors, which in practice means it is gone. A retention bond or a project bank account removes that exposure, but neither is standard.

What actually fixes it

Nothing sophisticated. Knowing what is held, on which project, and when each release falls due.

That means recording the retention percentage and the mechanism at contract stage, capturing the practical completion date when it happens, calculating the defects period end from it, and diarising both releases. Where the number sits in a spreadsheet on one person’s machine, it disappears when they do. Where it sits against the project, it survives.

It also belongs in the cost position rather than being treated as a windfall when it arrives. A CVR that ignores retention overstates what has actually been collected, and a final account settled without reconciling retention leaves money behind. Keeping it visible across every project is what Sync’s financial reporting and cost tracking are built to do.

Common questions

How much retention is normal?

Three to five per cent of each interim payment is typical in UK construction, with three per cent common on larger contracts. The percentage and the release mechanism are set by the contract, and are negotiable, particularly where the contractor has strong bargaining position.

When should retention be released?

Half at practical completion, and the balance on the certificate of making good once the defects liability period has ended and listed defects have been rectified. Both releases depend on someone issuing the relevant certificate, which is where the process most often stalls.

Why is retention risky?

Because it is an unsecured debt. If the client or the contractor above you becomes insolvent, retention held ranks alongside other unsecured creditors and is usually lost. It is money you have earned, spent the cost of, and cannot reach, held by someone whose financial position you may not know.

Are there alternatives?

Yes. A retention bond substitutes a bond from a surety for cash withheld, which removes the insolvency exposure. Project bank accounts ring-fence money outside the payer's balance sheet. Both are used, more commonly on larger public sector work, and neither is universal.

Retention