Construction Retention: What It Is, How It Works, and Your Rights

Retention is a percentage of contract sums withheld throughout a construction project as security against defects. In the UK construction industry, billions of pounds of retention are held at any time — and a significant proportion is never returned. Understanding your rights around retention is essential for contractors and subcontractors.

What Is Construction Retention?

Retention is typically 3–5% of the contract value, withheld by the paying party from each interim payment. It provides the employer (or main contractor) with a financial lever to ensure the contractor rectifies defects during and after construction.

Retention is usually held in two halves:

**Half released at practical completion:** When the works are substantially complete

**Half released at the end of the defects liability period:** Typically 12 months after practical completion, once outstanding defects are rectified

The Problem with Retention in Practice

In principle, retention is a reasonable concept. In practice, it is frequently abused:

Retention is often not released promptly even when defects have been rectified

Employers and main contractors use retention as a cash flow tool, withholding it beyond the agreed release date

When a contractor or employer becomes insolvent, retention held in the general business account is at risk — and often lost

Subcontractors at the bottom of the supply chain face multiple tiers of retention deduction

HMRC and industry research suggest that around £700 million of retention is lost each year to insolvency in the UK construction industry alone.

Your Legal Rights on Retention

The Construction Act: The Housing Grants, Construction and Regeneration Act 1996 sets out the right to interim payments and requires pay-less notices to be served if a deduction (including retention) differs from the payment notice. Failure to serve a proper pay-less notice means the full applied sum becomes due.

Contractual entitlement: Under JCT and NEC contracts, the release of retention is a contractual obligation — not a discretionary act. If retention is not released at the agreed time, the contractor has a right to payment.

Right to adjudication: If retention is withheld without a valid reason, the contractor can refer the dispute to adjudication under the Construction Act. Adjudicators regularly make awards for retention, and the decision is temporarily binding — meaning the employer must pay within the decision's timescale.

Practical Steps to Protect Your Retention

Keep detailed records: Maintain a retention schedule showing when retention should be released on each contract. Don't let the defects liability period expire without following up.

Issue practical completion certificates promptly: Ensure the contract administrator issues the practical completion certificate promptly at the end of the works. Delays in issuing this certificate delay the first retention release.

Issue a snagging list and rectify promptly: When defects are identified, rectify them quickly and confirm completion in writing. Don't give the employer any legitimate reason to hold retention beyond the release date.

Serve payment notices: Ensure your payment applications comply with the contract's notice requirements. Applications that don't meet the notice requirements may be challenged.

Consider adjudication: If retention is overdue and the employer won't engage, adjudication is often the most effective remedy. Adjudications for non-payment are typically straightforward and decided within 28 days.

The Campaign for Retention Reform

There has been significant campaigning in the UK industry for retention reform, including:

Mandatory retention deposit schemes (similar to tenancy deposit schemes)

A phased approach to reducing and eventually eliminating retention

The government has consulted on retention reform but no mandatory scheme has yet been introduced. At Volarex, we support industry-wide reform and advise our clients on how to manage retention risk in the current environment.

How Volarex Can Help

If your retention is being wrongfully withheld, we can review your entitlement, advise on the appropriate course of action, and provide quantum support for adjudication proceedings. Contact Adam Whitehouse for a confidential discussion.