Retention money in construction contracts: chasing it back

Aug 27
3 min read

Updated: 4 days ago

Introduction

A percentage of the value of completed, accepted construction work is held back by the client and released later. On paper it is a modest sum. In practice it is frequently the whole of a contractor's annual profit, sitting in someone else's account.

Firms lose this money not because it was never owed but because nobody tracked it, nobody chased it, and eventually nobody could evidence it. Retention is an administrative problem with a very large financial consequence.

1. Retention money in construction contracts is profit you have already earned

Reframe it, because the framing determines whether anyone chases it.

This is not a future payment or a bonus. It is money for work already done and already approved, being held against defects. Treating it as an outstanding debt from day one is the difference between recovering it and writing it off.

2. Know the retention terms before you sign

The percentage is only part of the picture.

How much is held, when half is released, when the balance is released, what triggers release, and how long the defects period runs. Some terms hold money for years after completion, and that is a commercial decision to make deliberately rather than discover later.

3. Keep a register of every retention balance you are owed

Most small contractors genuinely do not know their total.

One list: project, client, amount held, the date each tranche becomes due, and the current status. Assembling it for the first time is frequently a shock, and it is the single most useful hour of administration available in this trade.

4. Close out the defects list quickly and get it signed

Retention is released against practical completion and the end of the defects period, and both need documentation.

Deal with snags promptly while your team is still available, then obtain written confirmation that the work is accepted. Contractors who drift away after handover leave open items that justify holding the money indefinitely.

5. Chase release on a schedule, not when you remember

Retention is rarely paid without a request, and the request has to arrive at the right time.

Diarise each due date and issue the application when it falls. A polite, well-evidenced request on the day the money becomes due is far more effective than an angry one nine months late, and it establishes you as a firm that keeps records.

6. Apply the same discipline to your own subcontractors

If you hold retention from others, hold it fairly and release it properly.

Nothing damages a supply chain faster than a main contractor who keeps money without justification. Your ability to secure good subcontractor prices depends on being known as someone who pays, and that reputation is worth more than the cash held.

7. Forecast cash flow with retention shown separately

Retention distorts the picture badly if it is buried in debtors.

Show what is invoiced and collectable, and what is held and not yet due. A business that looks profitable while unable to pay wages is usually one carrying substantial retention and treating it as available money.

8. Understand what happens if the client fails

Retention held by an insolvent client is frequently unrecoverable.

Where the option exists, consider a retention bond or a project bank account instead of cash held by the employer. Assess the client's financial standing before signing, particularly for long defects periods, because the risk is not just delay but total loss.

9. Price retention into the tender

If money is going to be held for two years, that has a cost.

Financing the working capital, the administration of recovering it, and the risk of not recovering it at all. Contractors who price as though payment arrives in full on completion are quietly funding their clients, and the amount is not trivial.

Conclusion

Treat retention as earned profit held by someone else, because that is exactly what it is, and it disappears when nobody is responsible for it.

Read the retention terms before signing, keep a register of every balance and due date, close defects quickly and get acceptance in writing, chase release on a diary rather than by memory, release your own subcontractors' retention fairly, show retention separately in cash-flow forecasts, consider bonds where the client's covenant is weak, and price the cost of retention into the tender.