Construction Contract Retention

Construction contract retention is a pre-agreed percentage of the Contract Sum that may be held by the employing party throughout the construction works. This percentage is then used by the Employer in the event ‘something goes wrong’ and the Employer is at a loss due to the failures of the contractor.

How do you recover these retained funds?

A good starting point would be to check your contract: does it specify any conditions for the release? Construction contract retention usually means you receive the first half of retention on completion of the works, and the second half on completion of the defects liability period (defects liability period is the period for which the contractor is obligated to remedy any identified defects in the completed works).

What if there is nothing in the contract about retention?

If the contract failed to expressly include retention provisions the employing party may not have any grounds to withhold any money. In this event, any deducted retention may become a debt. The date that the debt would be due is the relevant final date for payment following your application (see our blog “Help Getting Paid” for more on the dates for payment). This may mean that you are entitled to interest on the outstanding retention from that date (see our blog “Chasing Interest on late payments“). However, this is all subject to the terms of the contract.

What if no release terms are specified?

If the contract does set a right for the employing party to keep retention but does not specify the release terms, the retention shall be released either:

1. with the last interim payment; or
2. with the final account (if there are provisions for one); or
3. within reasonable time following the completion of the works. What constitutes ‘reasonable time’ is decided on case-by-case basis.

Construction contract retention – separate application for funds

If you did not apply or simply did not receive retention funds as set above, you should issue a separate application for retention funds, the dates for payment of which may be either:

(1) as set for interim payments within the contract, or if no such dates are specified,

(2) as set in the Housing Grants Construction and Regeneration Act of 1996 and Scheme for Construction Contracts, as long as the relevant payment provisions apply. Otherwise, the payment shall be made within “reasonable time”.

Can the employer unreasonably withhold retention funds? Fortunately or not, the definition of ‘reasonableness’ is subjective. However, looking through your contract and identifying contractually permitted reasons for withholding payment may be a good start.

Moreover, there are certain clauses that are prohibited by law to be included in the contract, such as withholding funds because your employing party has not been paid by their employing party (subject to section 113 of the Housing Grants, Construction and Regeneration Act 1996).