What is Retention?
Retention is a percentage of a construction payment withheld by the client until the project is satisfactorily completed and defects are rectified.
Retention (or retainage) is a common practice in the construction industry where a percentage of each payment is held back by the client as security. The retained amount is released after the project is completed and any defects have been fixed.
- **How retention works:**
- Typical rate: 5% of each payment (sometimes 3% or 10%)
- First release: Usually 50% at practical completion
- Final release: Remaining 50% after defects liability period (typically 6-12 months)
Example: On a £100,000 project with 5% retention: - You invoice £100,000, receive £95,000 - £5,000 held in retention - £2,500 released at completion - £2,500 released after defects period
Problems with retention: - Cash flow pressure on subcontractors - Risk of non-payment if main contractor goes bust - Administrative burden tracking multiple retentions
Retention in your invoices: Always clearly show the retention amount on invoices. Track retention release dates carefully—this is money you've already earned.
UK developments: The 2019 Retentions Deposit Scheme proposal aimed to protect subcontractors, though implementation varies. Always secure retention terms in writing.
Examples
A builder holds 5% retention on subcontractor payments until project completion
A plasterer tracks £15,000 in retention across multiple projects
Retention is released 12 months after practical completion
Related Terms
CIS (Construction Industry Scheme)
CIS is a UK tax scheme where contractors deduct money from subcontractor payments and pass it to HMRC as advance tax payments.
Invoice
An invoice is a commercial document issued by a seller to a buyer, listing the products or services provided and requesting payment.
Accounts Receivable
Accounts receivable (AR) is the money owed to a business by its customers for goods or services delivered but not yet paid for.
Put This Into Practice
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