Retention Release

A construction client may hold back a portion of each progress payment as retention, and the money is intended to support completion and correction of defects under the contract. Retention release occurs when a contract milestone triggers payment of some or all of that withheld amount, and it is the contractor's cash only when the agreed conditions and payment process are satisfied.

The Joint Contracts Tribunal explains rectification periods under its contract forms and Hawkswell Kilvington discusses recovery of retention and disputes about payment, but these references are grounded in particular UK practice, so other standard forms and jurisdictions can use different milestones, notices or statutory rules. Retention is usually calculated as a percentage of certified work, often subject to a cap, so if a contract withholds 5% of a $2 million certified value, $100,000 may be retained before adjusting for caps or prior releases.

The percentage itself does not say when the cash comes back, so read the schedule and certification clauses. A common structure releases a portion when practical completion is certified and the balance after defects are made good, but it is not universal, since some contracts use section completions, a retention bond instead of cash, or a different release profile, and a contractor should not forecast "half on handover" unless its signed contract says that.

Practical completion has a formal meaning under the chosen contract, and a building can be occupied while minor defects remain, but the certification criteria still matter. A contractor should obtain the required certificate and preserve the date, because informal emails saying "looks finished" may not trigger a contractual release.

The defects or rectification period allows the client to notify issues requiring correction under the contract and, at its end, a separate certificate or confirmation may be needed, so the contractor should log each notified item and evidence that it was fixed rather than assuming the calendar alone releases the balance. Retention release can be delayed by paperwork, since final accounts, warranties, operation manuals and test certificates may be required under specific terms, so plan these deliverables during the project rather than after the last invoice.

A nearly complete package can still hold up a material amount of cash. Payment notices and invoice procedures may set deadlines, so the contractor should submit the correct application with retention calculations and certificates, while the client may have a period to value the amount or issue a notice explaining deductions.

Model cash flow carefully, because a contractor with $1 million in accumulated retention may owe wages and suppliers long before final release. The withheld sum is a receivable subject to conditions, not freely available cash, so include possible delay or dispute in the forecast rather than financing a new project against an optimistic date.

An illustrative release has $100,000 held, with $50,000 due at certified practical completion and $50,000 after an agreed defects milestone, which assumes the contract's terms and no valid deductions and is not an industry-wide requirement, as another contract may release all at once or use a bond. If a dispute arises, examine the contract, notices and evidence before escalating, since a contractor may need to use an agreed dispute procedure or legal remedy, and legal consequences vary so advice should be sought before treating a late payment as a breach or stopping work.

A client may need to explain why an amount is withheld, and neither side should assume that expiry of a defects period resolves every outstanding issue automatically. Retention release depends on the signed contract and completion evidence, so the contractor should track the accumulated amount, submit the right claim and close defects promptly, while the client pays valid amounts when due and documents any deduction.