Retention

Below is an introduction to the topic of retention. You can also search for your specific topic using the Search box at the top of the page or click on any of the following keywords and phrases: certificate of making good defects; defects liability period; retention bond.

Extent
This introduction applies specifically to the law of England, Wales and Northern Ireland but is also generally applicable to Scotland and the Republic of Ireland.

Retention is the practice whereby a paying party holds back a percentage of each interim payment (usually 5% or 3%) until a given event. Usually, half is released upon practical completion and the other half upon issue of a the expiry of the defects liability period or issue of a certificate of making good defects (the certificate may be called something different in your contract).

Because of the link between release of the second half of retention and the completion of the entire project,it can be difficult for those in a subcontract position to the second half of retention. For steelwork contractors, this can be a number of years after their own work has been completed. Delay in receipt of the last part of retention moneys need have no relation to the quality of the steelwork.

Retention is hallowed by long use in the construction industry but there is no reason why an invention of the Victorian railway boom should still be in use in the very different conditions of the 21st century. The House of Commons Trade and Industry Committee referred to retention as 'a practice which places a heavy burden on many companies in the construction industry, particularly the SMEs which make up the majority of firms in the sector.' ('The Use of Retentions in the UK Construction Industry', Second Report of Session 2002-03 HC 127).

It is often possible to negotiate a bond or indemnity in place of a retention; the funds thus released are not ‘extra’ in any way, or a ‘bonus’, but monies already earned by the steelwork contractor.