Retention in construction contracts - Revision history

Designing Buildings at 08:05, 1 April 2025

2025-04-01T08:05:30Z

← Older revision		Revision as of 08:05, 1 April 2025
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	Following previous lobbying from the CLC, retentions clauses are no longer standard in NEC contracts. It has lobbied JCT to make similar changes to its new contracts, which will be published later in 2024.		Following previous lobbying from the CLC, retentions clauses are no longer standard in NEC contracts. It has lobbied JCT to make similar changes to its new contracts, which will be published later in 2024.
		+
		+	== 2025 ==
		+
		+	From 1 March 2025 certain companies are required to report the retentions they hold and their retention practices.
		+
		+	The Reporting on Payment Practices and Performance Regulations 2017 were amended by The Reporting on Payment Practices and Performance (Amendment) Regulations 2025. They require qualifying companies to report how they deal with retentions in qualifying construction contracts:
		+
		+	* Which contracts and circumstances they use retention clauses in.
		+	* How they ensure retention clause used with subcontractors are no more onerous.
		+	* The process for releasing the retention.
		+	* The value of money retained.
		+
		+	Failure to publish a report is an offence liable on summary conviction to a fine.

	= Related articles on Designing Buildings =		= Related articles on Designing Buildings =

Editor at 11:02, 31 January 2024

2024-01-31T11:02:09Z

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	= What is retention? =		= What is retention? =
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	On 27 February 2020, in a debate in the House of Commons, in what has been seen as a backward step, Minister for Business and Industry Nadhim Zahawi siad: "It is important that any action we take is robust, proportionate and evidence based, which is where we are at the moment. Several policy options are under consideration, including the retention deposit scheme. It would be premature to commit to anything at this stage while several policy options are under consideration."		On 27 February 2020, in a debate in the House of Commons, in what has been seen as a backward step, Minister for Business and Industry Nadhim Zahawi siad: "It is important that any action we take is robust, proportionate and evidence based, which is where we are at the moment. Several policy options are under consideration, including the retention deposit scheme. It would be premature to commit to anything at this stage while several policy options are under consideration."

−	= 2023 =	+	== 2023 ==

	In a House of Lords debate in December 2023 the government said it wanted the industry to come to a consensus on the issue itself. The CLC had previously the ambition of abolishing retentions from the industry by 2025, this plan was however also dropped around this time.		In a House of Lords debate in December 2023 the government said it wanted the industry to come to a consensus on the issue itself. The CLC had previously the ambition of abolishing retentions from the industry by 2025, this plan was however also dropped around this time.
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	In response, Liberal Democrat Lord Andrew Stunell said ministers were asking for “the greedy lions to sit down with the defenceless lambs and decide what menu is going to be eaten. The reality is that the upper-tier contractors have not just the whip hand but the bank balance. He will know that many of them have a business model that functions only because they retain retentions to which they are not legally entitled.”		In response, Liberal Democrat Lord Andrew Stunell said ministers were asking for “the greedy lions to sit down with the defenceless lambs and decide what menu is going to be eaten. The reality is that the upper-tier contractors have not just the whip hand but the bank balance. He will know that many of them have a business model that functions only because they retain retentions to which they are not legally entitled.”

−	= 2024 =	+	== 2024 ==

	In the early 2024 the Electrical Contractors’ Association director of legal and business Rob Driscoll told [https://www.constructionnews.co.uk/financial/failure-to-ban-retentions-contributing-to-insolvencies-29-01-2024/ Construction News:] “With no policy or position in place from government to reform retentions, this long-running bone of contention will fail to be resolved and continue to inhibit productivity and performance by the industry. We know that if economic performance in construction declines, cashflow is squeezed and insolvencies rise.”		In the early 2024 the Electrical Contractors’ Association director of legal and business Rob Driscoll told [https://www.constructionnews.co.uk/financial/failure-to-ban-retentions-contributing-to-insolvencies-29-01-2024/ Construction News:] “With no policy or position in place from government to reform retentions, this long-running bone of contention will fail to be resolved and continue to inhibit productivity and performance by the industry. We know that if economic performance in construction declines, cashflow is squeezed and insolvencies rise.”

Editor at 10:58, 31 January 2024

2024-01-31T10:58:17Z

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	= What is retention? =		= What is retention? =
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	* Parent company guarantees.		* Parent company guarantees.
	* [[Retention_held_in_trust_fund\|Retentions held in trust funds.]]		* [[Retention_held_in_trust_fund\|Retentions held in trust funds.]]
		+
		+	[[File:MoneySterling.jpg\|link=File:MoneySterling.jpg]]

	= What attempts have been made to reform retention? =		= What attempts have been made to reform retention? =

Editor at 10:41, 31 January 2024

2024-01-31T10:41:54Z

← Older revision		Revision as of 10:41, 31 January 2024
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−	[[File:MoneySterling.jpg]]	+	[[File:MoneySterling.jpg\|link=File:MoneySterling.jpg]]

	= What is retention? =		= What is retention? =
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	On 27 February 2020, in a debate in the House of Commons, in what has been seen as a backward step, Minister for Business and Industry Nadhim Zahawi siad: "It is important that any action we take is robust, proportionate and evidence based, which is where we are at the moment. Several policy options are under consideration, including the retention deposit scheme. It would be premature to commit to anything at this stage while several policy options are under consideration."		On 27 February 2020, in a debate in the House of Commons, in what has been seen as a backward step, Minister for Business and Industry Nadhim Zahawi siad: "It is important that any action we take is robust, proportionate and evidence based, which is where we are at the moment. Several policy options are under consideration, including the retention deposit scheme. It would be premature to commit to anything at this stage while several policy options are under consideration."

		+	= 2023 =

		+	In a House of Lords debate in December 2023 the government said it wanted the industry to come to a consensus on the issue itself. The CLC had previously the ambition of abolishing retentions from the industry by 2025, this plan was however also dropped around this time.
		+
		+	Lord Malcolm Offord said: “Our long-term aim is to remove the need for retentions altogether.” He explained that the government supported academic work that aims to develop “a quality metric as a viable alternative to the withholding of cash retentions as a form of insurance against defects. We are working with the industry and a lot of consideration has been given to this matter but, ultimately, the construction industry itself needs to come to a consensus on how to improve this area.”
		+
		+	In response, Liberal Democrat Lord Andrew Stunell said ministers were asking for “the greedy lions to sit down with the defenceless lambs and decide what menu is going to be eaten. The reality is that the upper-tier contractors have not just the whip hand but the bank balance. He will know that many of them have a business model that functions only because they retain retentions to which they are not legally entitled.”
		+
		+	= 2024 =
		+
		+	In the early 2024 the Electrical Contractors’ Association director of legal and business Rob Driscoll told [https://www.constructionnews.co.uk/financial/failure-to-ban-retentions-contributing-to-insolvencies-29-01-2024/ Construction News:] “With no policy or position in place from government to reform retentions, this long-running bone of contention will fail to be resolved and continue to inhibit productivity and performance by the industry. We know that if economic performance in construction declines, cashflow is squeezed and insolvencies rise.”
		+
		+	He said he agreed with Lord Stunell’s comments and that New Zealand had provided a template for reform of the issue last year by passing a law that changed the system. The law mandates that all retention money is held in a trust and cannot be used for any purpose other than fixing defects.
		+
		+	Following previous lobbying from the CLC, retentions clauses are no longer standard in NEC contracts. It has lobbied JCT to make similar changes to its new contracts, which will be published later in 2024.

	= Related articles on Designing Buildings =		= Related articles on Designing Buildings =

Designing Buildings at 07:26, 28 December 2022

2022-12-28T07:26:14Z

← Older revision		Revision as of 07:26, 28 December 2022
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−	~~= Introduction =~~	+	[[File:MoneySterling.jpg]]

−	~~Retention~~ is ~~a percentage (often 5%) of the amount certified as due to the contractor on an interim certificate, that is deducted from the amount due and retained by the client. The purpose of~~ retention ~~is to ensure that the contractor properly completes the activities required of them under the contract.~~	+	= What is retention? =

−	In the US, ~~this~~ is ~~known as Retainage~~.	+	Retention is a percentage (often 5%) of the amount certified as due to the contractor on an interim certificate, that is deducted from the amount paid and retained by the client. The purpose of retention is to ensure that the contractor properly completes the activities required of them under the contract.

	Retention can also be applied to nominated sub-contractors, and the main contractor may also apply retention to domestic sub-contractors.		Retention can also be applied to nominated sub-contractors, and the main contractor may also apply retention to domestic sub-contractors.

−	Half of the amount retained is released on certification of practical completion ('substantial completion' for Institution of Civil Engineers (ICE) contracts) and the remainder is released upon certification of making good defects.	+	In the US, this is known as Retainage.
		+
		+	= What happens to retention? =
		+
		+	Half of the amount retained is released on certification of practical completion ('substantial completion' for Institution of Civil Engineers (ICE) contracts) and the remainder is released upon certification of making good defects at the end of the defects liability period.
		+
		+	On construction management contracts, a separate certificate of practical completion must be issued for each trade contract and so there are a number of defects liability periods. This means that retention must be released as required for each individual trade contract. The same is true on management contracts, where each works contract must be certified individually.
		+
		+	= How is retention processed? =

	Interim certificates should make clear the amount of retention and a statement should also be prepared showing retention for nominated sub-contractors.		Interim certificates should make clear the amount of retention and a statement should also be prepared showing retention for nominated sub-contractors.
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	The contract may require that retention is kept in a separate bank account and that this is certified to contractors. In this case, the client will generally keep any interest paid on the account.		The contract may require that retention is kept in a separate bank account and that this is certified to contractors. In this case, the client will generally keep any interest paid on the account.

−	~~NB: On construction management contracts, a separate certificate of practical completion must be issued for each trade contract and so there~~ are ~~a number of defects liability periods. This means that~~ retention ~~must be released as required for each individual trade contract. The same is true on management contracts, where each works contract must be certified individually.~~	+	= What are the problems with retention? =
−		+
−	~~= Reform~~ =	+

	Retentions can be large amounts of money and may cause cash flow problems for contractors. It has even been suggested that retention clauses do not comply with the Housing Grants, Construction and Regeneration Act, which sets out requirements for the withholding of payments.		Retentions can be large amounts of money and may cause cash flow problems for contractors. It has even been suggested that retention clauses do not comply with the Housing Grants, Construction and Regeneration Act, which sets out requirements for the withholding of payments.
		+
		+	In 2014, Debbie Abrahams, MP said: “There is evidence that cash retentions have been used to shore up the working capital of local authorities and Tier 1 suppliers. There is a key concern that if Tier 1 suppliers become insolvent, the small businesses in the supply chain are at risk of losing their retentions.” (ref. [http://www.constructionenquirer.com/2014/11/24/subcontractors-take-retentions-abuse-battle-to-parliament/ Construction Enquirer] 24 November 2014.)
		+
		+	The construction supply chain payment charter proposing abolishing retention by 2025.

	For more information, see The problems with retention.		For more information, see The problems with retention.
		+
		+	= What alternatives are there to retention? =

	A possible alternative to retention is a retention bond, where the client agrees to pay the amounts which would otherwise have been held as retention, but instead a bond is provided to secure the amount that would have been retained. As with retention, the value of the bond will usually reduce after practical completion has been certified.		A possible alternative to retention is a retention bond, where the client agrees to pay the amounts which would otherwise have been held as retention, but instead a bond is provided to secure the amount that would have been retained. As with retention, the value of the bond will usually reduce after practical completion has been certified.

−	~~Other proposals~~ include ~~putting retention in a trust account, and the construction supply chain payment charter proposing abolishing retention by 2025.~~	+	The 2017 Pye Tait Review suggested that alternatives to retentions might include:

−	~~In 2014~~, ~~Debbie Abrahams~~, ~~MP said: “There~~ is ~~evidence~~ that ~~cash retentions~~ have been ~~used to shore up the working capital of local authorities and Tier 1 suppliers~~. ~~There is a key concern that if Tier 1 suppliers become insolvent~~, the ~~small businesses in the supply chain are at risk~~ of ~~losing their retentions~~.~~” (ref~~. ~~[http://www~~.~~constructionenquirer~~.~~com/2014/11/24/subcontractors-take-retentions-abuse-battle-to-parliament/ Construction Enquirer] 24 November 2014~~.)	+	* Project bank accounts.
		+	* Retention bonds, where the client agrees to pay the amounts which would otherwise have been held as retention, but instead a bond is provided to secure the amount that would have been retained. As with retention, the value of the bond will usually reduce after practical completion has been certified.
		+	* Performance bonds.
		+	* Escrow stakeholder accounts.
		+	* Parent company guarantees.
		+	* [[Retention_held_in_trust_fund\|Retentions held in trust funds.]]
		+
		+	= What attempts have been made to reform retention? =

	== 2017 ==		== 2017 ==
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	On 27 February 2020, in a debate in the House of Commons, in what has been seen as a backward step, Minister for Business and Industry Nadhim Zahawi siad: "It is important that any action we take is robust, proportionate and evidence based, which is where we are at the moment. Several policy options are under consideration, including the retention deposit scheme. It would be premature to commit to anything at this stage while several policy options are under consideration."		On 27 February 2020, in a debate in the House of Commons, in what has been seen as a backward step, Minister for Business and Industry Nadhim Zahawi siad: "It is important that any action we take is robust, proportionate and evidence based, which is where we are at the moment. Several policy options are under consideration, including the retention deposit scheme. It would be premature to commit to anything at this stage while several policy options are under consideration."

−	~~= Alternatives =~~

−	~~The Pye Tait Review suggested that alternatives to retentions might include:~~
−
−	* Project bank accounts.
−	* Retention bonds.
−	* Performance bonds.
−	* Escrow stakeholder accounts.
−	* Parent company guarantees.
−	* [[Retention_held_in_trust_fund\|Retentions held in trust funds.]]

	= Related articles on Designing Buildings =		= Related articles on Designing Buildings =
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	* Certificate of making good defects.		* Certificate of making good defects.
	* Construction (Retention Deposit Schemes) Bill 2017-19.		* Construction (Retention Deposit Schemes) Bill 2017-19.
−	* Contingencies in construction.
−	* Contract sum.
−	* Defects in construction.
	* Defects liability period DLP.		* Defects liability period DLP.
−	* ECA Survey: Industry remains optimistic despite downturn.
	* Failure to complete construction works.		* Failure to complete construction works.
	* Final account.		* Final account.

Editor: Reverted edits by 212.104.237.66 (talk) to last revision by Designing Buildings

2022-05-16T15:45:18Z

Reverted edits by 212.104.237.66 (talk) to last revision by Designing Buildings

← Older revision		Revision as of 15:45, 16 May 2022
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	= Introduction =		= Introduction =
		+
		+	Retention is a percentage (often 5%) of the amount certified as due to the contractor on an interim certificate, that is deducted from the amount due and retained by the client. The purpose of retention is to ensure that the contractor properly completes the activities required of them under the contract.

	In the US, this is known as Retainage.		In the US, this is known as Retainage.

212.104.237.66 at 14:00, 16 May 2022

2022-05-16T14:00:14Z

← Older revision		Revision as of 14:00, 16 May 2022
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	= Introduction =		= Introduction =
−
−	Retention is a percentage (often 5%) of the amount certified as due to the contractor on an interim certificate, that is deducted from the amount due and retained by the client. The purpose of retention is to ensure that the contractor properly completes the activities required of them under the contract.

	In the US, this is known as Retainage.		In the US, this is known as Retainage.

Designing Buildings at 08:56, 8 December 2021

2021-12-08T08:56:53Z

← Older revision		Revision as of 08:56, 8 December 2021
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	* [[Retention_held_in_trust_fund\|Retentions held in trust funds.]]		* [[Retention_held_in_trust_fund\|Retentions held in trust funds.]]

−	= Related articles on Designing Buildings ~~Wiki~~ =	+	= Related articles on Designing Buildings =

	* Bonds in construction contracts.		* Bonds in construction contracts.
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	* Defects liability period DLP.		* Defects liability period DLP.
	* ECA Survey: Industry remains optimistic despite downturn.		* ECA Survey: Industry remains optimistic despite downturn.
		+	* Failure to complete construction works.
	* Final account.		* Final account.
	* Final certificate.		* Final certificate.

Editor at 17:20, 18 September 2020

2020-09-18T17:20:40Z

← Older revision		Revision as of 17:20, 18 September 2020
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	* Defects in construction.		* Defects in construction.
	* Defects liability period DLP.		* Defects liability period DLP.
		+	* ECA Survey: Industry remains optimistic despite downturn.
	* Final account.		* Final account.
	* Final certificate.		* Final certificate.

Designing Buildings at 05:49, 27 August 2020

2020-08-27T05:49:26Z

← Older revision		Revision as of 05:49, 27 August 2020
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	* [http://www.constructionmanagermagazine.com/news/60-engineering-firms-say-turnover-held-retentions/ Construction Manager, 20 November 2017, 60% of engineering firms say turnover is held in retentions].		* [http://www.constructionmanagermagazine.com/news/60-engineering-firms-say-turnover-held-retentions/ Construction Manager, 20 November 2017, 60% of engineering firms say turnover is held in retentions].

−	[[Category:Construction_management]] [[Category:Contracts_/_payment]] [[Category:Cost_/_business_planning]] [[Category:Procurement]]	+	[[Category:DCN_Definition]] [[Category:DCN_Guidance]] [[Category:Construction_management]] [[Category:Contracts_/_payment]] [[Category:Cost_/_business_planning]] [[Category:Procurement]]