What are the best ways to prevent construction contract retention disputes?

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.