What can I do if a retention isn't paid?

The construction industry is full of cases where retention is held by contractors. It becomes overdue and is often paid late by main and principal contractors, leaving sub-contractors in a difficult position and money owed to them.

How does retention work? A retention payment is an amount of money due to a sub-contractor (usually between 2% and 5% of the total value of works) that's held back until a job is complete (practical completion). It acts as a kind of security deposit, ensuring that the project works will be fully completed, and any defects ('snagging issues') are remedied.

In most cases, a proportion of the retention money is paid on completion (practical completion) of the job. There's then an agreed 'defects liability period', during which the sub-contractor is obliged to rectify any snagging issues, which is typically 12 months. At the end of this period, if there are no issues or any issues have been dealt with, the rest of the retention should be paid.

That's the theory. In practice, retention monies are often not paid on time. In some cases, they're never paid at all.

In 2017, a government review of the practice of cash retention under construction contracts estimated that the total amount owed under retentions in just one year was between £3.2 billion and £5.9 billion.

Retention liabilities usually flow down the supply chain from the main contractor, so they can affect several different companies working on one particular project.

Do you get paid all the retention you are owed on time?

Do you often have to chase, pester, and wait a long time to get paid your retention?

If you struggle with retention, you are not alone in construction.

It's not uncommon for main contractors to withhold retention payments to protect their own cash flow – but at your expense.

If you're struggling to get paid any retentions you're owed, here are few tips...

Check your contract Your initial works contract should specify the due dates for payment, including the final date for payment of any retentions. If not, you should refer to the scheme of construction contracts, which specifies standard payment terms.

What if the project has been completed with no defects? In all cases, make sure you insist on practical completion certificate, this can get missed but it will help you down the line.

If the works have been completed and signed off, but the retention payment hasn't been released, you should first contact client to find out why. If they can't give you a satisfactory explanation for withholding the retention payment, you should send them formal written notice that the payment is due and set a deadline. They must reply to you with a withholding notice, explaining why they're not paying the due amount.

What if there are snagging issues? The first thing to do is to find out exactly what the problem is and whether there's just one issue or more than one. Make sure all issues are in writing and agreed so there are not back and forth. If you agree, you should get things rectified as soon as possible and obtain a formal sign-off on the work. You then have a strong case to insist that the retention amount is settled promptly.

Don't delay! contractors don't put a high priority on chasing overdue retention payments. If it is overdue and owed to you, it should be paid. Although your focus may be on to new projects, having a strong credit control procedure in place to chase overdue debt is important. Retention should be helping your cash flow not the main contractors.

Acting sooner rather than later should also put you at the front of the queue. You won’t be the only supplier chasing a retention payment.

Still struggling or would just rather not deal with retention. Retention is a debt that can be awkward to recover. It can take time and money to recover. If you are struggling to recover retention or would rather avoid the process our tech can help.

As an alternative to traditional debt collection and legal proceedings, our platform can plug in to your completed and current projects and manage the process of monitoring and getting retention paid.

Our software means we can do so at a significantly lower cost to you.