What Is Retention in Construction — and Should You Use It?
Retention is a mechanism used in construction contracts whereby the client (the employer) withholds a percentage of each payment due to the contractor — typically 2.5–5% — as security against the risk of defective work or incomplete obligations. The retained sum is held by the client and released to the contractor at defined milestones. Here's how it works and why it matters for domestic renovation projects.
How Retention Works
Under a retention mechanism, each payment to the contractor is reduced by the agreed retention percentage. So on a project where 5% retention is being held and the month's valuation is £10,000, the contractor receives £9,500 and £500 is retained.
The accumulated retention is typically released in two stages: half at practical completion (when the contractor hands the project over and the defects liability period begins); and the remaining half at the end of the defects liability period (typically 6 or 12 months after practical completion), provided all defects identified during that period have been remedied.
What Retention Achieves
Retention provides the client with financial leverage to ensure: the contractor returns to remedy snagging items and defects identified at practical completion; the contractor returns during the defects liability period to address any defects that emerge from the works; and the final account is resolved before the last of the retention is released.
Without retention, a client who has paid the full contract sum has less financial leverage over the contractor once the project is substantially complete. Getting a contractor to return for snagging and defects remediation after full payment has been made can be significantly more difficult in practice.
Should You Use Retention on a Domestic Project?
On significant domestic projects (above £30,000–£50,000), a retention mechanism is worth including in the contract. The standard JCT Minor Works contract includes provision for retention as a matter of course.
On smaller projects, formal retention may not be appropriate — but the principle of withholding the final payment until snagging is complete is important regardless. Do not make your final payment before you have inspected the works and agreed that the contractor's obligations are met.
A Balanced View
Retention should be seen as a fair commercial mechanism that protects both parties — not as a tool to delay payment to the contractor. Releasing retention promptly when the conditions for release are met is part of a fair commercial relationship. Withholding retention beyond its due date without proper justification creates cash-flow problems for the contractor and damages the working relationship.
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