Retention of payment in construction contracts

Published by a UU��ֱ�� Construction expert

Practice notes

Retention of payment in construction contracts

Published by a UU��ֱ�� Construction expert

Practice notes

The concept of a Retention from Interim payments is commonplace in commercial construction contracts, particularly standard form ones.

What is retention?

Retention is the name given to the money the employer retains from interim payments as security for the future performance of the contractor's obligations and to incentivise the contractor to fulfil all of its obligations. From each interim payment made to the contractor, the employer holds back a certain percentage, which is called the 'retention' (or the 'retentions'). Retention may also be encountered down the supply chain, for example, a contractor may retain sums from its sub-contractor.

The intention is to provide for partial payment as the work progresses and to defer final payment until Completion of all obligations under the contract. As well as encouraging the contractor to complete the works, the retention can also be used to fund the correction of defects where a contractor defaults under the contract.

How much retention is retained?

Retention amounts can be anything up to around 10%. On larger projects the amount is more likely to be 3–5%

Jurisdiction(s):

United Kingdom

Key definition:

Retention definition

What does Retention mean?

Retention is a percentage of the sums payable by way of interim payment deducted by the employer and held until completion. Half of the retention is released on practical completion, the other half on the expiry of the defects liability period or issuance of a certificate of making good defects.

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