Retention in construction: how it works, when it must be released, and how to get it back

Published 21 July 2026 · VariationFlow

A plain-English guide to retention for UK subcontractors: what retention is, the usual 5% and 2.5% figures, when the two halves must be released, the Construction Act rules on release tied to another contract, why retention quietly disappears, and a practical playbook for recovering it, including old retention you wrote off.

£128,000 of flooring across a school refurbishment, 5% retention. That is £6,400 of your money held back, £3,200 of it released when the job reaches practical completion, and the last £3,200 due a year later, once defects are made good. Except on most subcontract ledgers there is a column of these last halves that never came back: nobody diarised the date, nobody applied, and the main contractor was never going to volunteer it. Retention is the most routinely written-off money in UK construction, and much of it is recoverable.

What is retention?

Retention is a percentage of each interim payment, most commonly 5%, sometimes 3%, withheld by the paying party as security that the work will be completed and defects put right. It is not a discount and not a fee: it is your money, earned and certified, with its release deferred. The contract sets the percentage, the trigger events for release and the timescales, which is why the first step in any retention question is always the same: read the retention and payment clauses of your executed sub-contract, not the industry norm.

When must it be released?

• The usual pattern: half the retention is released at practical completion (taking the hold to 2.5%), and the second half at the end of the rectification or defects liability period, commonly 12 months later, once defects are made good.
• Under JCT forms the final release is triggered by the certificate confirming defects have been made good; under NEC, retention only applies if secondary Option X16 is selected, with its own release mechanics. Your sub-contract’s wording governs.
• Check whose completion your release runs off. If your package finishes in March and the project hands over in December, retention tied to the main contract’s completion keeps your money out for most of a year longer than retention tied to your own.
• Release is still a payment under the Construction Act: it needs a due date and a final date for payment, and any deduction from it needs a valid pay less notice served in time.

The trap: release tied to someone else’s contract

Sub-contracts often try to tie your retention release to events above your head, “released within 14 days of the certificate of making good defects under the main contract”. Since the 2011 amendments to the Construction Act, that mechanism is in trouble: section 110(1A) says a contract does not provide an adequate payment mechanism where payment is conditional on the performance of obligations under another contract. Section 113 separately voids pay-when-paid clauses outright, except where the payer’s own payer is insolvent. If your retention is stuck behind someone else’s certificate, the clause holding it there may not survive scrutiny, and where the contractual mechanism fails, the Scheme for Construction Contracts steps in with its defaults.

Why retention goes missing

• Nobody diarises the second half. The first moiety arrives with the practical-completion valuation; the second falls due a year later, when the job is archived, the QS has moved on and your team is three projects away.
• In practice it has to be applied for. Main contractors rarely volunteer release, no application, no payment, and the ledger quietly absorbs the loss.
• The set-off ambush: a release application is met with late counter-charges, “outstanding defects”, “attendances”, never mentioned during the defects period and rarely supported by a valid pay less notice.
• Insolvency: retention is almost never held in trust, so it is simply an unsecured debt. When Carillion collapsed, its supply chain lost the retentions it was holding, money for work long since finished and defect-free.
• Company churn: novations, rebrands and group restructures upstream break the paper trail, and the entity that owes you no longer answers the phone.

How to get retention back, including the old stuff

• Build the inventory: every job from the last six years, contract sum, retention percentage, practical completion date, defects period end, what was released and when. The write-offs live in this list.
• Check limitation before writing anything off: a simple contract gives you six years from when the release fell due, a contract executed as a deed twelve. Old retention is often still live money.
• Apply formally, in writing, citing the contract clause and the certificate or date that triggered release, and state the final date for payment.
• Remember the notice regime protects you here too: to keep any of it, the payer must serve a valid pay less notice in time. A late lump of “defects” at release time rarely comes with one.
• Escalate on a timetable: statement of account, then a letter before action, then adjudication. Retention disputes are narrow and document-led, which makes them comparatively cheap to refer.
• For genuinely small sums, look at the low-value dispute adjudication services: fixed, modest fees designed for exactly this kind of claim.

Can you avoid retention altogether?

Sometimes. Retention can be negotiated down or out, some clients will trade it for a retention bond, and release can be pushed to run off your own practical completion rather than the project’s. On public-sector work, check for project bank accounts. Industry reform, retention deposit schemes, statutory trusts, outright abolition, has been proposed repeatedly and is worth supporting, but none of it is law: for now the only real protection is your contract terms, your records and your diary.

None of this needs software, but all of it needs dates and evidence kept alive for years, which is exactly what slips. VariationFlow keeps the money side of every project on one timeline: applications, variations, payment cycles and contract deadlines tracked to the day with the evidence attached, and the retention held per project as a running figure with each moiety recorded when it is released. The release dates themselves are not computed from the contract, because they turn on certificates the payer issues, so diarise them from the practical completion and making-good dates as you record them. This guide is general information, not legal advice, for a significant stuck retention, particularly where insolvency is in play, take advice from a construction solicitor early.