Retention is one of construction's most contested payment mechanisms — and one of the least well understood by the subcontractors who carry most of its burden. You finish your works, you invoice correctly, and yet a percentage of what you're owed sits in someone else's account for months or years. In the UK alone, it is estimated that billions of pounds in subcontractor retention remain unreleased at any given time.
This guide explains how retention works, what standard terms look like, when release should happen, and what practical steps subcontractors can take to recover money they've already earned. If you haven't yet reviewed the retention clauses in your subcontract before signing, the subcontractor contract review checklist is a good place to start.
What Is Construction Retention?
Retention is a percentage of the subcontract sum that the main contractor withholds from each payment until defined milestones are reached. It originated as a mechanism to protect the contractor against defective work — a financial incentive for the subcontractor to return and remedy any issues that emerge after practical completion.
In theory, retention is a fair tool. In practice, it has evolved into something quite different: a significant source of contractor working capital, a lever used to delay payments, and in cases of insolvency, a fund that simply disappears before subcontractors can access it.
Retention is typically withheld from every interim payment throughout the works, released in two tranches — half at practical completion, half at the end of the defects liability period — and subject to a formal release process that the subcontractor must actively pursue.
Standard Retention Percentages
The most common retention rate in UK subcontracts is 5%, applied to the full subcontract sum. Some contracts reduce this to 3% once the subcontract works reach practical completion or once the interim payment total exceeds a defined threshold — this is sometimes referred to as a "retention release cap."
Under standard JCT forms, retention is typically set at 3% for the main contract, though bespoke amendments frequently push this higher. When a main contractor holds 3% from the employer but deducts 5% from subcontractors, the difference comes straight out of the subcontractor's cash flow.
Anything above 5% should be challenged before you sign. Some bespoke subcontracts attempt to impose retention of 7.5% or even 10%, particularly on smaller package values where the contractor may be using retention as a substitute for more detailed contract administration. The unfair subcontract clauses guide covers retention alongside six other terms worth pushing back on.
Retention is also applied cumulatively. On a £500,000 subcontract at 5% retention, £25,000 is withheld across the interim payment period. That money is doing real work in your business — or should be. When it's sitting in a contractor's account instead, the cash flow effect compounds over time.
Not sure what your retention terms actually say? LazyQS reviews your subcontract and flags retention clauses that exceed industry norms — including missing release dates and uncapped retention percentages.
When Should Retention Be Released?
Under the standard JCT approach, retention is released in two equal tranches:
First half is released following practical completion of the subcontract works. This does not necessarily mean completion of the overall project — your works can be practically complete even when the main contract programme is still running. The trigger is completion of your scope to a standard where only minor snagging remains.
Second half is released at the end of the defects liability period (DLP) — typically 12 months after practical completion of the subcontract works. This release is conditional on you having rectified any defects notified during the DLP. Once that period expires and defects have been addressed, there is no legitimate basis for the contractor to continue holding the second half.
In practice, both tranches are frequently delayed. First-half retention is sometimes withheld until main contract practical completion rather than subcontract practical completion — which can add months or years to the wait. Second-half retention is often held pending a final account that never seems to close.
The worst outcome — and a depressingly common one — is retention tied to the main contractor receiving their own retention from the employer. This is a pay-when-paid arrangement in substance, and one that the pay-when-paid and pay-if-paid guide addresses in detail. It is worth understanding the distinction before you encounter it in a contract.
What to Check in Your Retention Clause
Before you sign, your retention clause should be reviewed for four specific things:
The retention percentage. Is it at or below 5%? Does it reduce after a certain milestone? Is it applied to the subcontract sum net of VAT?
Release triggers. Are they tied to your works specifically, or to the overall project? A clause that releases retention on "practical completion of the Works" may mean the main contract works rather than your subcontract works — a distinction that matters enormously on a long-duration project.
A longstop date. This is the most commonly missing provision. Without a longstop date for release of the second half, the main contractor has no contractual obligation to close out the final account within any defined period. Your money can sit indefinitely. Insist on a backstop date — 12 months after the end of the DLP is a reasonable starting position.
Insolvency protection. Retention held by a main contractor who becomes insolvent is an unsecured debt. You join the queue of creditors, and in most cases you receive pennies in the pound. This is the principal driver behind the ongoing debate around retention deposit schemes, discussed below.
The Retention Recovery Process
Knowing you're owed retention is one thing. Actually recovering it is another. The following process gives you the best chance of a prompt release.
Notify formally at practical completion. When your works reach practical completion, write to the main contractor setting out the date, confirming what was completed, and requesting release of the first half of retention. Don't assume the contractor is tracking this independently — assume they are not.
Track the defects liability period. Note the DLP start date and calculate the end date. Diarise a prompt to follow up approximately six weeks before the DLP expires. This gives you time to ensure any outstanding defects are resolved before you make the formal release request.
Submit a formal retention release request. At or immediately after the DLP end date, send a written request citing the contract clause, the DLP end date, the amount outstanding, and the bank details for payment. Reference the final date for payment under the contract. This creates a clear paper trail if you need to escalate.
Issue a payment notice if the contractor fails to release. Under the Construction Act, you are entitled to issue your own payment notice if the contractor fails to issue one by the required date. If retention is due and the contractor hasn't issued a pay less notice reducing it, the full amount becomes payable by the final date for payment. Be aware that some contractors will attempt to offset contra charges against retention — any such deduction requires a valid pay less notice and substantiated costs.
Consider adjudication. Retention disputes are well suited to adjudication. If you have a clear entitlement under the contract, the DLP has ended, defects have been addressed, and the money is simply being withheld, an adjudicator will typically make a decision within 28 days. The threat of adjudication often prompts payment before the process formally begins. LazyQS contract review can help you identify exactly what your contract says about retention release so you go into any dispute with the clause wording clearly documented.
Escalate to legal if necessary. Where adjudication doesn't produce payment, or where the amount is large enough to justify it, litigation or further legal action may be appropriate. Get advice from a solicitor specialising in construction law before issuing proceedings.
Retention Recovery Checklist
- [ ] Before signing — Confirm retention is 5% or below, release triggers are tied to your works, and a longstop date exists
- [ ] At practical completion — Write to the contractor formally, confirm the date, and request first-half release in writing
- [ ] During the DLP — Respond promptly to any defect notifications; document all remedial works in writing
- [ ] Six weeks before DLP end — Resolve any outstanding defects; confirm with the contractor that no further issues remain
- [ ] At DLP end — Submit a formal written request citing the contract clause, DLP end date, and amount due
- [ ] If no payment notice received — Issue your own payment notice under the Construction Act
- [ ] If retention withheld without a pay less notice — The full amount is due by the final date for payment; put the contractor on notice
- [ ] If still unpaid — Seek specialist advice and consider adjudication; most straightforward retention claims resolve at this stage
The Retentions Deposit Scheme Debate
The systemic problems with retention — delayed release, use as contractor working capital, and loss through insolvency — have been debated at a policy level for many years. The most widely discussed solution is a statutory retention deposit scheme, under which retention money would be held in a protected ring-fenced account rather than in the contractor's general cash flow.
Several industry bodies, including Build UK and the Specialist Engineering Contractors' Group, have backed reform. The Aldous Bill — a private member's bill promoting a retention deposit scheme — gained significant traction in Parliament before stalling. The 2018 government consultation acknowledged the problem but stopped short of legislating.
As of now, there is no statutory requirement for retention to be held in trust. Main contractors can — and most do — treat retention as part of their general working capital. This means that when insolvency occurs, subcontractor retention is lost along with every other unsecured creditor's claim.
What this means in practice: if your main contractor is experiencing financial difficulties, recovering unpaid retention becomes significantly harder. The only meaningful protection available to subcontractors today is negotiating retention trust language into their subcontract — a clause requiring the main contractor to hold retention monies in a designated account separate from general funds. Few main contractors will agree to this without push-back, but it is worth raising.
Staying informed about your retention position across all active projects is one of the most straightforward ways to protect your cash flow — and flagging contracts where release mechanisms are weak before you sign is far easier than trying to recover the money later. That is exactly the kind of clause-level risk that LazyQS contract review highlights automatically.
Keeping Retention Under Control
Retention is not going away in the short term. Until reform happens, the best protection subcontractors have is a clear understanding of what they've agreed to, a disciplined process for requesting release at the right time, and a willingness to escalate promptly when payment isn't forthcoming.
The key principles are straightforward: know your release triggers, don't wait for the contractor to act, document everything in writing, and treat overdue retention the same way you'd treat any other overdue payment. The money was earned — recovering it is a matter of following the right process at the right time.
For a broader view of the payment terms that affect subcontractor cash flow, the subcontractor contract review checklist covers retention alongside eleven other clauses worth checking before you commit to any subcontract.