Retentions in construction: how small trades get the money released (UK)

A mate of mine did the first fix electrics on a 2-bed extension in Leeds. £16,000 job, subcontract for a local main contractor. He invoiced every month, got paid every month, and finished on time. Then he looked at the final statement and saw £800 sitting there marked "retention".

He'd signed it without reading that bit. Fourteen months later he was still ringing the office to ask where it was.

Retention is the part of a job that gets paid last, if it gets paid at all. This guide covers what it is, what the usual percentages are, when it falls due, and how to get it out of the customer without a falling out.

What retention actually is

Retention is money the paying party keeps back from each payment, or from the final one, as security. The idea is simple. If your work has a fault that only shows up after handover, they have cash in hand to get it fixed without chasing you for it.

There is no law that says you must accept retention. It is a contract term. It shows up mostly on subcontract work for main contractors, on commercial fit-outs, and on larger private jobs run on JCT-style contracts. On a small domestic job for a homeowner it is much rarer, and you can nearly always say no.

Typical figures:

• 3% is the usual default on standard JCT forms.
• 5% is common on subcontract work, especially with main contractors who pass their own retention down the chain.
• 10% is rare and worth pushing back on. Ask why.

Retention is held on each interim payment as the job goes along, so by the end the full amount is sitting with the customer.

When it is due back

Most contracts release retention in two goes.

First half: practical completion

Practical completion means the work is finished except for minor snags that don't stop the customer using the space. Half the retention is released at this point. The contract should say who decides when practical completion has happened, and it matters. If the answer is "the main contractor, at their discretion", you are relying on them to say the words.

Second half: end of the defects period

The defects period, sometimes called the rectification period, usually runs for 6 to 12 months after practical completion. You fix any defects they notify during that time. At the end, the remaining half is due.

Check the contract for two things: the length of the defects period, and whether release happens automatically or only after a "certificate of making good defects". If a certificate is needed, put the date in your diary and ask for it.

Worked example: a £16,000 first fix and second fix

Say Adam Wójcik trading as Wójcik Electrical takes a subcontract for £16,000 on a house extension. The contract sets 5% retention, half at practical completion, half after 12 months.

• Contract value: £16,000
• Retention at 5%: £800
• Paid across the job (95%): £15,200
• Released at practical completion (half): £400
• Released after the 12-month defects period (half): £400

Now look at what it does to the margin. If the job made you 20% profit, that is £3,200. The £800 held back is a quarter of your profit, sitting with someone else for a year.

If the main contractor is 60 days late releasing the final £400 and you use the Late Payment Act on a debt under £1,000, you can claim:

• Interest at 8% above Bank of England base rate (about 12% with base at 4%): £400 × 12% ÷ 365 × 60 = £7.89
• Fixed recovery cost for a debt under £1,000: £40
• Total owed: £400 + £7.89 + £40 = £447.89

The interest is small. The £40 is what gets a finance department to pay up rather than file it. The base rate moves, so check the current figure on gov.uk before you send the letter.

How to get it released

Retention doesn't release itself. Somebody has to ask, and it should be you.

1. Put the dates in your diary on day one

When you sign, write down the practical completion date and the defects period end date. Set a reminder four weeks before each. Most unpaid retention is just forgotten retention.

2. Invoice for it as a separate line

Send a retention release invoice, not a message saying "can you release my retention". Reference the contract clause, the original job, and the date the trigger was met. A clear invoice with a number on it is much harder to ignore than an email.

3. Fix your defects quickly and get it in writing

The usual reason for a held release is an outstanding snag. Close them out, take photos, and ask for written confirmation that the list is clear. That removes the excuse.

4. Chase in writing after the due date

Once the release date has passed and no defects are open, the retention is a debt. Use the same escalation as any late invoice: a polite nudge, then a letter citing the Late Payment Act 1998 if the customer is a business. The full set of letters is in our guide to chasing late payment, and the interest rules are covered in the Late Payment Act guide.

5. Know the formal routes

If it still isn't paid, Money Claim Online covers England and Wales and Simple Procedure covers Scotland, as with any other debt. For commercial construction contracts, the Housing Grants, Construction and Regeneration Act 1996 (the Construction Act) can also give you the right to adjudication, a fast process that usually produces a decision in 28 days. It does not apply to contracts with a homeowner living in the property, so check gov.uk or take advice before relying on it.

Retention on homeowner jobs

Homeowners sometimes ask to hold something back "until I'm happy". It is a fair worry. Nobody wants to pay in full and then chase a plumber who has stopped answering.

You can meet that worry without signing up to an open-ended hold. Offer a small, fixed holdback, say 5% or £500 whichever is lower, with a set release date such as 28 days after the job finishes, and write it into the quote. Or skip it and use stage payments so you are never owed much at any point. If you do agree a holdback, a sign-off form at the end locks in the date. If a customer withholds money with no agreed date, Citizens Advice has plain guidance on where you both stand.

What NOT to do (the 5 common mistakes)

1. Don't sign without reading the retention clause. The percentage, the release trigger and the defects period are the three things that decide when you are paid. Read all three.
2. Don't accept "retention until the main contractor is paid by the client". That ties your money to someone else's cashflow and no date. Ask for a fixed period instead.
3. Don't forget it exists. Retention is often the last thing on the books and it stays unclaimed because nobody asked. Diary the dates.
4. Don't ignore a defect notice. An open snag gives the customer a legitimate reason to hold the lot. Fix it, photograph it, get it signed off.
5. Don't price the job as if retention isn't there. If 5% sits with the customer for a year, that is a real cost to you. Build it into the price or negotiate it down.

The insolvency risk

This is the part nobody likes to talk about. If the main contractor goes under before your retention is released, the money is usually part of their general funds and you join the queue of unsecured creditors, which often means pennies in the pound.

Some contracts require retention to be held in a separate trust account, and some use retention bonds in its place. Ask which applies before you sign. If neither does and you can't get the percentage down, think about whether the customer's finances are strong enough to wait a year for your money. A quick look at their filings on Companies House costs nothing and takes five minutes.

The habit that saves the most money

Treat retention as its own invoice from the day the job is signed. Put the date on a calendar, send the release invoice the week the trigger is met, and follow up in writing. Retention you chase gets paid. Retention you wait for tends to get missed.

It is the same rule as everywhere else in getting paid: send paperwork early, in writing, with dates on it. A tool like the TradeStash app keeps those invoices and due dates in one place so nothing slips, but a diary and a spreadsheet will do the job too.