Retention is an agreed proportion of money (often 3–5%) due under a construction contract which is withheld to encourage completion of the works and to safeguard against defects. In many projects, retention is not released until 12–18 months after completion (and sometimes longer if release is delayed or disputed).
What are the problems?
Cash flow
Cash flow problems arise because the contractor is denied payment for work already completed. This is often most damaging to sub-contractors further down the supply chain, where profit margins can be narrow and retention can represent a significant proportion of profit on a project.
Increased client costs
Where contractors price in the risk of delayed or non-payment of retention, the overall cost of works can increase. This can be particularly noticeable on projects where a contractor’s working capital is constrained.
It undermines business relationships
There is ongoing debate about whether retention genuinely improves performance and quality outcomes. In practice, retention can create an atmosphere of distrust and increase the scope for disputes about completion, defects and certification.
It is unusual outside of construction
The withholding of cash retention is strongly associated with building and civil engineering supply chains. Many other industries manage quality and defects risk using different commercial and contractual mechanisms (for example, staged payments linked to acceptance criteria, warranties, guarantees and insurance products).
It can be an administrative burden
Retention often causes significant administration: tracking amounts withheld, identifying who has authority to release them, and chasing release at the end of the defects liability period. Where records or project teams change, retention can be overlooked, delayed or disputed.
The risk lies with the sub-contractor
If a party holding retention becomes insolvent before it is released, recovery can be difficult. This risk (and the wider impact on smaller suppliers) has been a major driver behind repeated calls for reform and stronger protections.
Retention reform
Alternatives to cash retention
If the purpose is to protect against defects, there may be more suitable alternatives depending on the project risk profile, contract structure and bargaining positions. Common options include:
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Zero retention arrangements
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Retention bonds
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Performance bonds
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Parent company guarantees
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Insurance solutions (where appropriate)
Steps taken by government and the direction of travel
In April 2014, government and industry launched the Construction Supply Chain Payment Charter, which includes the ambition to move to zero cash retentions by 2025. It is important to note that this is an industry/government charter commitment, not (by itself) legislation that abolishes retention.
More recently, the Department for Business and Trade (which now holds the relevant policy brief) ran a consultation titled “Late payments: tackling poor payment practices”, updated in January 2026. The consultation explicitly discusses retention payment practices in construction and explores potential legislative approaches to improve payment culture and address retention-related harms (including insolvency risk).
There have also been legislative proposals in the past (for example, the Construction (Retention Deposit Schemes) Bill 2017–19) intended to protect retention monies through deposit schemes; however, those proposals did not become law.
Steps taken by the construction industry
Some large clients and contractors have moved away from cash retention on certain projects or frameworks and instead rely on alternative security arrangements and supply-chain performance management. Industry bodies have also continued to campaign for change, often highlighting the cash-flow and insolvency risks associated with withheld retention.
If you are experiencing delayed release of retention, disputes about certification or defects, or concerns about supply-chain insolvency risk, DTM Legal’s construction team can advise on your contractual position and dispute resolution options.
This article is for general information only and does not constitute legal advice. Specific advice should be taken for your particular circumstances.
