Retention, and the money
that goes missing.

Retention is the only money in construction that everyone agrees is owed, everyone agrees will be paid, and a great many firms never actually collect. It is not withheld by fraud. It is withheld by a clause, released by a date, and lost by nobody remembering the date.

What is retention, and how much is held?

On most subcontracts, a percentage is deducted from every interim valuation and held by the party above you. Three per cent and five per cent are the common figures, usually with a cap expressed as a percentage of the contract sum. It is not a penalty and it is not a dispute. It is security: a fund the payer can draw on if you leave defects behind and will not come back for them.

The important structural fact is that it comes off every valuation. On a job running eighteen months, retention accrues quietly, month after month, out of money you have already earned and already spent delivering. By the end it is frequently the difference between the job having been worth doing and not.

It is then released in two halves, and the second half is the one this article is about.

The four dates that govern it

Almost every retention argument in UK subcontracting reduces to a disagreement, or an ignorance, about four dates:

1. Practical completion of your works. Not the main contract. Yours. In most standard subcontract forms this is what triggers the first release.
2. Practical completion of the main contract. On some forms your release is tied to this instead, which can be months after you finished and entirely outside your control. Which of the two applies to you is the single most valuable thing to know about your own contract.
3. The end of the defects liability period, also called the rectification period. Commonly twelve months from the relevant practical completion, sometimes six, sometimes twenty-four on M&E packages.
4. The making good certificate, or whatever the form calls the document confirming defects have been rectified. On many contracts the second half is not due at the end of the period; it is due on the certificate, which somebody has to actually issue.

The first half you will chase, because you finished last month. The second half falls due a year later, when the job is gone, the file is closed, and the person who ran it has left.

Why the second half goes uncollected

There is rarely a villain. The mechanism is ordinary and it is nearly always the same:

• Nobody owns the date. The commercial team is measured on live jobs. A job that reached practical completion fourteen months ago is not a live job, so it has no owner, so the diary entry that should have fired never existed.
• The release is conditional and the condition is somebody else's job. If payment turns on a making good certificate, and nobody asks for the certificate, the money is not late in any contractual sense. It simply has not become due, and it never will until somebody triggers it.
• The final account never got agreed. Retention sits behind the account. Where variations were done on trust and never valued, agreeing the account means reopening arguments people have moved on from, so it drifts, and the retention drifts with it.
• The paying party has changed shape. A year is long enough for the contractor above you to restructure, be acquired, or in the worst case become insolvent. Retention is not held in trust unless the contract says so, which most do not: it is working capital in somebody else's business, and if that business fails you are an unsecured creditor.
• Nobody can evidence the claim quickly. When somebody finally does chase, they need the valuations, the cumulative deduction, the practical completion date and the correspondence. If assembling that takes two days of somebody's time, it competes with live work and loses.

What controlling it actually requires

Not much, honestly, which is what makes losing it so annoying. It requires four things to be recorded once, at the point they are known, rather than reconstructed later:

1. The terms, on the order. Percentage, cap, what triggers each half, and how long the defects period runs. These are known on day one, before anybody has done any work, and they are the cheapest thing in the world to write down at that moment.
2. The running total. What has been deducted, cumulatively, across every valuation, sitting where the project's commercial position sits rather than in a spreadsheet on one machine.
3. The dates as they crystallise. Practical completion when it happens. The defects period end, calculated from it. The certificate when it is issued, or the fact that it has not been.
4. The correspondence. Every request, every response, every silence. Silence is evidence too, and after a year it is the only thing that distinguishes "we asked repeatedly" from "we forgot".

Retention is not a collections problem. It is a records problem that turns into a collections problem twelve months later.

If it comes to a fight

Under the Housing Grants, Construction and Regeneration Act 1996, as amended, you have a right to refer a dispute to adjudication at any time, and retention disputes are well suited to it: the sums are usually undisputed in principle and the argument is about entitlement and timing. A payment application for the retention, properly made, also engages the payment and pay-less notice regime, and a payer who fails to serve a valid pay-less notice in time has a real problem.

None of which helps if you cannot show what was deducted and when. Adjudication is fast and evidence-led, and the party that arrives with a clean schedule of deductions, dates and correspondence tends to be the party that is still standing at the end of it. This is the practical argument for keeping the record straight while the job is running: not because you expect a fight, but because being obviously ready for one is usually what prevents it.

The mirror image, upstream

If you hold retention from your own subcontractors, everything above applies to you in reverse, and there is an additional exposure worth naming. Retention you hold is a liability you have already spent, and a subcontractor who has kept better records than you will eventually ask for it with dates attached. Firms are frequently more organised about the retention they owe than the retention they are owed, which is precisely the wrong way round.

Where to start, on Monday

Pick the jobs that reached practical completion between twelve and twenty-four months ago. That window is where uncollected second moieties live, and it is small enough to work through in an afternoon. For each one, answer three questions: what was held, has the defects period ended, and has anybody asked. Most firms doing this for the first time find at least one job where the answer to the third question is no.

Then do the boring thing that prevents it recurring: put the retention terms on the order at the point of award, and put the defects period end date somewhere that will still be looked at in a year. That is the whole discipline. It is not sophisticated, and it is worth more than most of the things firms buy software for.