Retention in Construction: How It Works and How to Manage It

Retention is money withheld from interim payments as security against defects. It is standard practice in UK construction, but it ties up significant cash and causes real problems when it is not tracked or released on time. This guide explains how retention works, what the typical terms are, and how to manage it properly across your projects.

What Is Retention in Construction?

Retention is a percentage of each interim payment that the payer holds back as a financial incentive for the contractor or subcontractor to complete the work and rectify any defects. It is not a penalty -- it is a form of security. The money is held in trust (or should be) and released in stages once the work is satisfactorily completed.

• Typically 5% of each interim valuation (some contracts use 3%)
• Withheld from each payment application during the project
• Half is released at practical completion
• The remaining half is released at the end of the defects liability period (usually 12 months)
• The employer holds retention on behalf of the contractor -- it should not be treated as a discount

Half Retention Release (Practical Completion)

When practical completion is certified, half of the total retention is released in the next payment. This recognises that the building or works are substantially complete and fit for use. The contractor should check that the retention release is included in the next payment certificate.

• Triggered by the certificate of practical completion
• Half of the total retention held is released
• Should appear in the next interim payment or certificate
• Chase promptly if it does not appear -- delays are common
• Check the contract for the exact mechanism and timing

Full Retention Release (End of Defects Period)

The remaining retention is released after the defects liability period ends, provided any notified defects have been rectified. On most contracts this is 12 months after practical completion. Subcontractors often have to wait for the main contractor to release retention, which can add further delay.

• Typically 12 months after practical completion (check your contract)
• Requires a certificate of making good defects or equivalent
• Defects must have been rectified to the satisfaction of the contract administrator
• Subcontractor retention release depends on the main contract terms
• If defects are not notified within the period, retention should be released in full

Common Retention Problems

Retention is one of the most common sources of cashflow frustration in UK construction. Contractors and subcontractors frequently report late release, unjustified withholding, and difficulty tracking retention across multiple projects and clients.

• Late release: retention not paid on time despite defects being rectified
• Unjustified withholding: retention held beyond the defects period without valid reason
• Insolvency risk: if the employer or main contractor becomes insolvent, retention may be lost
• Poor tracking: retention across 20+ live projects is difficult to manage on spreadsheets
• Subcontractor squeeze: main contractors delay releasing retention even after receiving it
• No trust account: retention is often not held in a separate account despite recommendations

How to Manage Retention Effectively

Good retention management starts with tracking it from the first interim payment. Know how much is held on each project, when half release is due, when full release is due, and chase it on time. Retention you forget about is retention you may never get back.

• Record retention held on every interim payment application
• Track practical completion dates and half release due dates per project
• Track defects liability end dates and full release due dates per project
• Set calendar reminders or use software alerts for release milestones
• Chase retention proactively -- do not wait for the payer to offer it
• Keep records of all defect rectification work as evidence for release