Retention in Construction Contracts: What It Is and Why It Matters
Retention (also called contract retention or retainage) is a percentage of the contract sum that the client withholds from each payment to the contractor. It acts as a financial incentive for the contractor to return and correct defects — because the withheld sum is only released after defects are remedied.
How Retention Works
A typical retention arrangement works as follows:
Retention rate agreed at contract stage: Commonly 3–5% of the contract sum. A £100,000 project with 5% retention means £5,000 is withheld.
Retention deducted from each interim payment: If payments are made at intervals during the project, retention is deducted from each payment. At practical completion, the client holds the full retention amount.
50% of retention released at practical completion: When the project is practically complete — finished and ready for occupation — half the retention is typically released. So £2,500 would be released on a £100,000 project with 5% retention.
Remaining 50% released at end of defects liability period: The defects liability period (DLP) is typically 6–12 months after practical completion. At the end of the DLP, if defects have been corrected, the remaining retention is released.
What the Defects Liability Period Is
The defects liability period (DLP) is a defined period after practical completion during which the contractor is obliged to return and rectify defects that emerge at no additional cost to the client. The DLP exists because some defects only become apparent after occupation — when the property is heated, when it rains, when floors settle.
A typical residential renovation DLP is 6–12 months.
Retention in Domestic Projects
For smaller domestic residential projects (under ~£50,000), retention is less commonly used. Many domestic contractors quote all-inclusive fixed prices with staged payment milestones (deposit, during build, on completion). The risk of snagging and minor defects is handled through reputation, relationship, and the final payment milestone rather than a formal retention mechanism.
For larger domestic projects (extensions plus refurbishments, HMO conversions, multi-phase works), a formal JCT-style contract with retention becomes more appropriate.
Protecting Your Retention (for Subcontractors)
In construction supply chains, retention owed to subcontractors by main contractors has historically been a problem — if the main contractor becomes insolvent, the retention held may be lost. Government consultation on mandatory retention deposit schemes has been ongoing; the current position is that subcontractors should be aware of the credit risk represented by outstanding retention.
RCB Design & Build
RCB Design & Build operates with clear payment milestones and scope-based invoicing — with contract terms agreed in advance before work starts.