Retention in construction is the practice of withholding a percentage of the payment due to a contractor or subcontractor, by the client or main contractor, as security against defects, incomplete work or failure to comply with the contract. The amount withheld gives financial security that any rectification or outstanding work will be completed after the project reaches practical completion (Completion under NEC) and during the defects or rectification period.
The key aspects of retention are:
- Retention percentage: the percentage withheld depends on the terms of the contract and the nature of the project. In the UK it is commonly 3% to 5%, although higher percentages, occasionally up to 10%, are sometimes seen, particularly in subcontracts.
- Retention release: retention is usually released in two stages. Half is typically released at practical completion, when the work has been completed to the required standard. The balance is released at the end of the defects or rectification period once any defects have been put right, for example on issue of the certificate of making good under JCT or the Defects Certificate under NEC.
- Retention fund: in some cases, amounts retained from one or more contractors or subcontractors are held in a separate retention fund or account managed by the client or main contractor. Some standard forms, including JCT contracts, provide that the employer holds retention on trust for the contractor.
- Retention bond: as an alternative to cash retention, a contractor or subcontractor may provide a retention bond. This is a guarantee from a third party surety, usually a bank or insurance company, covering the retention amount.
Retention is a common way of managing risk and encouraging good workmanship in the construction industry. However, clients and main contractors must follow the contract terms and release retained sums promptly once the contractual requirements have been met.
