How Long Can Retention Money Be Held For?

Retention is the legitimate withholding of a portion of payment under a construction contract until the contractor has completed the project free of defects and the defects liability period has expired.

Most construction contracts control this process with a clause that states a certain percentage of the contract price (commonly, 5% or 10%) is withheld from the contractor until the contract has reached practical completion and/or the end of the defects liability period a. However, this can create cash flow problems for the contractor.

How long retention money can be withheld depends upon the terms of the contract. 

Retentions have always been a tricky issue. In 2017, the UK Government ran a consultation to research how retentions operate in the construction industry. This led to the BEIS Report, which found that approximately 71% of contractors surveyed had experienced delays in receiving retention monies.

Contractual integrity and professional advice are essential in managing retentions and any delays or disputes to avoid a cash flow crisis, which can ultimately threaten the viability of the business.