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How Does Retention Work?
Retention is an amount of money withheld from a contractor until a job is complete. This normally is 3-5% of the contract’s sum. It acts as a kind of security deposit: if defects are made 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 is outlined in Section 111 of the Housing Grants Construction and Regeneration Act 1996 (the Construction Act ). If the employer does not serve a notice to withhold/pay less, the retention must be given in full regardless of defects.
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. 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 an employer should receive full payment following this period.
The initial work contract should specify the due dates for payment and the final payment date. However the contract you signed might not specify these dates. Section 110 of the Construction Act specifies that these payments 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 later.
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 the basis of 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 can file a claim against you later 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
- 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 retention
- The employee received payment from a separate party (pay when paid).
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. 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 refusing unfairly refusing to release retention’s. 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. e 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 a free consultation.