Recover Retention in Construction
Most construction contracts use retention. It’s a method that ensures the paying party has money left over to pay for defects in construction. It also keeps contractors and subcontractors motivated and helps to guarantee that a project will be completed to the required standard. But what happens if you’ve finished work and you haven’t received your retention money back? It’s possible that your payment is being withheld unfairly, and unfortunately this practice is not uncommon.
At Helix Law, we work with businesses to recover their retention following the completion of construction work. As retention recovery experts, we can diagnose retention disputes and fight for rightful recovery. If we determine the employers or main contractors are wrongfully withholding, your retention can be recovered on a No Win No Fee basis.
How Does Retention Work?
Retention is an amount of money withheld from a contractor until a job is complete. This normally is 5-10% of the contract’s sum. It acts as a kind of security deposit: if defects are left by the contractor that they fail to remedy, the money is rightfully retained by the employer to fix those defects.
Retention provisions should be carefully outlined in the contract before work begins. If there are no legitimate defects, it should be returned promptly following the completion of construction and after the defect liability period. All dates should be clearly outlined in the contract.
Reasons For Retention Withholding
Retention withholding is a common issue in the construction industry. Problems commonly arise in construction during the time it takes to complete jobs. New management, project setbacks, and cash flow issues are almost par for the course. As a result, an employer can find themselves tight on money, stressed, and over budget. They’ll look for ways to retain money, even if it’s at your expense.
Here are a few common ways that the paying party will withhold retention from contractors.
- Claiming Defects
Since the retention is intended to cover the costs of fixing defects on a job, it’s possible that an employer will claim a defect or exaggerate a problem to withhold retention.
If the company claims a defect, they must inform the contractor in the right way and at the right time. This duty is likely to be in the contract. If not, it is outlined in Section 111 of the Housing Grants Construction and Regeneration Act 1996 (the Construction Act ). Further, the party that seeks to have a defect remedied must mitigate their loss. The primary way that can be done is to invite the builder back to fix their own defect. If the employer does not serve a notice to withhold/pay less, the retention must be given in full regardless of defects and the payer must then claim back any defects it alleges.
Insolvency is when a company cannot pay its debts as they fall due. This can happen if the employer overspends and becomes financially unstable. If they’re unable to pay or return the retention, then it will be lost unless they hold it on trust under the contract.
How Do I Recover Construction Retention?
It is usual for retention to be paid at two different times during the construction process. Often half of the retention will be paid following the completion of the job, often referred to as practical completion. The other half will be paid after the defects liability period ends. This is when employers agree a time to examine a completed job for defects and damages. According to standard contracts, a certificate of making good of defects should be issued if all of the defects raised in the liability period have been dealt with, at that point an employer should make full payment of the second half of the retention.
The initial works contract should specify the due dates for payment and the final payment date for payment of the retention. However the contract you signed might not specify these dates. Section 110 of the Construction Act specifies that these payment dates must be outlined in the contract. If not outlined in the contract, employers are bound by the payment terms set out in the Construction Act and Scheme for Construction Contracts. If nothing is set out in the contract about retention payment dates then the due date is likely to be 30 days after completion or the making of a claim for payment of the retention. The final date for payment where the contract is silent will be 17 days after the due date.
You’ll need to calculate the payment dates in the contract you signed or under the Scheme. Then you can apply for retention release. You should then send the employer or contractor a notice. They are obligated to respond in a limited time-frame if they wish to serve a withholding notice/ notice to pay less – this specifies that the employer or contractor will not pay in full and how the sum withheld and the sum payable is calculated.
If the employer or contractor ignores the application for retention release, you are entitled to receive your retention regardless of their intentions. They must pay first and argue later as they can file a claim against you after paying if they have valid evidence of defects. However, this does not change the fact that you are entitled to recover retention if they do not issue a formal notice.
In short, you’ll need to follow these steps:
- Calculate the contract due dates and final payment dates for the retention payments
- Follow the contract or statutory payment notice procedures
- If you do not receive a notice to pay less, seek legal advice.
Prohibited Retention Clauses
It’s possible that your employer is withholding your retention for reasons that can be deemed ineffective. These are outlined in the Housing Grants Construction and Regeneration Act of 1996. This law prohibits employers from withholding retention because of:
- The job performance under another contract
- A decision by an employer or third party that obligations under another contract affect the payment of your retention
- The employer has not received payment from a separate party (pay when paid clauses or justifications).
Your employer or contractor might have communicated any of these reasons to you. Or you might believe that any of these reasons are the cause of your retention being withheld. If this is the case, you must consult with a legal team. At Helix Law, expert construction lawyers with experience in retention recovery can examine your case, including your contract. They will inform you if any of these clauses apply to your case and can fight for your payment.
Get Help Demanding Your Payment
Recovering retention in construction can be challenging. If your employer or contractor fails to pay it can be burdensome to retrieve your retention payment. That’s why it’s important to consult with a legal team with experience in construction disputes.
Often these companies are running retention schemes. They are attempting to compensate for their own financial shortcomings by unfairly keeping your retention release to fund their own business. You have the right to argue for what is guaranteed in a contract or under the Construction Act.
Helix Law knows how to challenge employers and contractors who are unfairly refusing to release retentions. We are experts at the retention recovery and legal process. We frequently refer payment disputes to an adjudicator and get quick decisions in favour of our clients. From analysing a dispute to sending a notice, we will fight for your right to be paid. Adjudication can be completed in 28 days. We can offer our services on a No Win No Fee basis or a Damage Based Agreements (DBA), you only have to pay us if you recover your money – if you don’t get paid, we don’t get paid
Contact Helix Law today to tell us your story. Let us determine how we can help you through an initial consultation.
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Frequently Asked Questions
A construction contract retention is a percentage of the money payable to the contractor that is held back to ensure the work is completed in line with the agreed terms.
Typically, retention in a construction contract is set at between three to five per cent of the overall project value. The contractor will still receive instalment or stage payments, but the percentage is deducted from the interim payments. If the contractor has subcontractors working for them, this deduction is usually passed down the line.
The retention is usually paid at two points during the project. Half of the retention is paid to the contractor when the work is completed. The second and final portion is paid when the liability period for defects ends.
Moiety means division or share. The first moiety in a construction contract is the first half of the retention payable when the contractor has completed their work on the project.
The second moiety is the final part of the retention, paid when the liability period for defects has ended. The defects liability period as it pertains to payment of the second retention payment can be as short as six months or, in some cases, more than a year.
The payment points for first and second moiety retentions are defined in the construction contract.
The Housing Grants Construction and Regeneration Act 1996 outlawed “pay when paid” arguments for payments in construction contracts. It stated that the release of money could not be delayed by an event that occurred under another contract, such as the main contract on the project.
Prior to that date, a contractor could withhold the retention money for an issue that had nothing to do with the subcontractor’s work under their contract.
The legislation states that it is only possible to withhold retention monies if there is an event or incident related explicitly to the subcontract. Occurrences that take place under the main contract — or another contract the subcontractor is a party to — are no longer valid grounds to withhold a retention payment.
‘Pay when paid’ clauses are illegal under the Housing Grants Construction and Regeneration Act 1996. Such clauses are another source of delay for contractors waiting for payment.
Despite their illegality, ‘pay when paid’ clauses remain surprisingly commonplace in construction contracts. Such provisions purport to allow the contractor to delay payment to the subcontractor until the contractor has received payment from the project owner but they are not valid or enforceable even if the other party willingly agreed to it.
Now that ‘pay when paid’ clauses are unlawful, the main contractor must still pay the subcontractor even if the project owner has defaulted and is late with their payment or does not pay at all.
Ideally, the subcontractor will receive half of the retention monies once the work is completed. This is sometimes called ‘practical completion.’
Subsequent to payment of the first moiety, the subcontractor enters the defect liability period. The subcontractor must repair or address any faults or defects in their work which the contractor has found following their inspection.
Once the defect liability period ends, the work is re-inspected. Providing that the contractor is satisfied that all the issues listed in the Schedule of Inspection are resolved, the certificate of making good of defects is issued and the second moiety of the retention is paid out. Otherwise, the process will repeat itself and payment of the last half of the money will not occur until the contractor is satisfied with the work.
The Housing Grants, Construction & Regeneration Act 1996 does prohibit some retention clauses as follows:
- Conditional retention clauses which link payment to the performance of obligations under another contract
- The payer receiving payment from a third party — a ‘pay when paid’ clause
- A retention clause that makes payment conditional upon a third party decision about obligations under a different contract
The best way to prevent retention disputes under a construction contract is to ensure the terms and conditions are made detailed and thorough during contractual negotiations and set out a clear framework for payment. The contractor should ensure there is no scope for the employer to withhold for defects or other claims by making sure the interim applications and final accounts are thorough and all issues are dealt with as and when they arise.
Disputes typically occur because the contract is inadequate or unclear or because one or both parties depart from its terms. This is so commonplace that many subcontractors write off retention monies as a loss and do not pursue their contractual entitlement. Often, they have moved on to other projects and accept the loss as a cost of doing business.
However, even in a clear contractual situation, it is not unusual for retentions to be paid extremely late or not at all. Overdue retention payments should be followed up promptly. Missing retention payments can end up causing severe cash flow problems.
As a general rule, subcontractors should not agree to second retention dates that are months after the issue of the certificate for making good of defects. Protracted payout periods are just a delaying tactic and possibly an attempt to link payment to other contracts, thus bypassing the provisions of the Construction Act.