Last edited 16 Feb 2018

Retention held in trust fund

Retention is a percentage (often 5%) of the amount certified as due to a contractor on an interim certificate, that is retained by the client. The purpose of retention is to ensure that the contractor properly completes the activities required of them under the contract. Half of the amount retained is released on certification of practical completion and the remainder is released upon certification of making good defects. For more information see: Retention.

However, retentions can be considerable sums of money and they can cause cash flow problems for contractors, in particular if there are difficulties or disputes in relation to their payment.

In October 2017, the government published the Pye Tait review which sought to assess the costs and benefits of retentions along with a number of alternative mechanisms for ensuring completion of the works.

One of the suggested alternatives was that retention could be held in a trust fund. This can help guard against the risk of the client’s insolvency, as the retention money would not form part of their assets and so could still be received by the contractor. Control over the fund is passed on to an independent agent.

Those who oppose this solution argue that it reduces the available capital that can be paid out to creditors in the event of client insolvency.

At present, it would appear that the industry is not particularly supportive of using retention trusts. In March 2015, a petition on their use closed having attracted fewer than 2,000 signatures.

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