Retention in Construction UK
A complete guide to retention payments for UK construction subcontractors. Understand how retention works, when it's released, and how to protect your cash flow.
What is Retention in Construction?
Retention (also called "retainage") is a portion of each payment withheld by the client or main contractor as security. It acts as insurance that the work will be completed properly and any defects will be fixed.
While retention protects clients, it creates significant cash flow challenges for subcontractors who must wait months or years to receive money they've already earned.
Typical Retention Structure
How Retention Works
Standard Process
- During the project: Client holds back 5% of each interim payment
- At practical completion: First 50% of retention (2.5% of contract) is released
- Defects liability period: Usually 6-12 months to identify and fix defects
- End of defects period: Final 50% of retention is released
Example Calculation
For a £100,000 subcontract with 5% retention:
- Total retention held: £5,000
- First release (at completion): £2,500
- Final release (after defects): £2,500
How to Invoice with Retention
Your invoices should clearly show the retention calculation. Here's the correct format:
Retention Release Certificates
When retention is due for release, you should issue a retention release invoice or reference your original invoices. Include:
- Original invoice numbers the retention relates to
- Total retention amount due
- Whether this is first or final release
- Project reference and completion certificate number
Retention Problems and How to Avoid Them
Common Issues
- Contractor insolvency: If the main contractor goes bust, retention may be lost
- Delayed release: Clients may "forget" to release retention
- Disputed defects: Retention held pending resolution of alleged issues
- Cash flow pressure: 5% on multiple projects adds up
Protection Strategies
- Track all retention: Keep a register of retention held and release dates
- Calendar reminders: Set reminders for release dates
- Request retention bonds: Ask for bonds on large projects
- Negotiate lower rates: Try to negotiate 3% or 2.5% on smaller projects
- Retention trust accounts: Request retention is held in trust
Retention Under Different Contract Types
| Contract Type | Typical Retention | Notes |
|---|---|---|
| JCT | 5% | Standard form, well-defined release process |
| NEC | Variable (often 3-5%) | Specified in Contract Data |
| DOM/1 | 5% | Domestic subcontract version of JCT |
| Bespoke | Varies | Check terms carefully—may be higher |
Cash Flow Impact of Retention
For a subcontractor with £500,000 annual turnover and 5% retention:
- Retention held at any time: Potentially £25,000+
- Average wait for release: 12-18 months
- Cost of financing that cash: Significant borrowing costs
This is money you've already earned and spent resources delivering— make sure you track it and claim it.
Track Retention Automatically
Experi tracks retention across all your projects, reminds you when it's due for release, and helps you generate retention release invoices. Never lose track of money you've earned.
Frequently Asked Questions
What is retention in construction?
Retention is a percentage (typically 5%) of each payment withheld by the client as security until the project is completed and any defects are fixed. It's released in two stages: usually half at practical completion and half after the defects liability period.
How much retention is held in construction?
The standard retention rate in UK construction is 5%, though it can range from 3% to 10% depending on the contract. JCT and NEC contracts typically specify 5% retention.
When is retention released?
Typically, 50% of retention is released at practical completion, and the remaining 50% is released at the end of the defects liability period (usually 6-12 months after completion).
Can I refuse to accept retention?
Retention is usually a contract term, so refusing it means not accepting the contract. However, you can try to negotiate lower rates, retention bonds, or trust accounts. On smaller projects or with established clients, you may be able to negotiate no retention.
What happens if the main contractor goes bust?
Retention may be lost if not held in a trust account. This is why retention bonds and trust accounts are important protections. Consider this risk when deciding which projects to take on.