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Retention Money in Construction

Introduction

The aim of this blog post is to define what retention is, why construction contracts include retention clauses and how retention money is practicably held and released by the employer.

This blog looks at general principles of retention and makes some reference to the Joint Contract Tribunal (JCT) forms of contract, however parties to a construction contract should always refer to their specific terms and conditions when administering retention clauses as these may vary.

What is retention?

Retention is a sum of money, which is normally withheld from each monthly interim payment made to a contractor/sub-contractor during construction.

What is the purpose of retention in construction?

Retention is intended to provide the employer with an element of security that the contractor/sub-contractor will return to correct any defects during the defects correction period which is typically between 6 and 12 months after project completion and handover.

If the contractor/sub-contractor does not return and rectify any defects, then the retention money which is held by the employer may be used to source and fund the payment of another contractor/sub-contractor to correct the defects. The employer and its representatives should check on the ability to withhold retention, pay others to remedy defects and the relevant notices which should be given prior to appointing others to carry out remedial works.

How much retention is held by the Employer?

The amount of retention which can be withheld from each interim payment depends on the form of contract and particular conditions. However, in JCT contracts, retention is typically withheld based on a percentage of the value of the contract sum including the cost of any variations or changes to the contract sum.

The default level of retention contained within JCT ranges between 3% and 5% depending on the form of contract. If it is not the intention to deduct retention, then nil or zero should be entered.

When does the Employer release retention?

Typically, half of the retention money is released by the employer upon completion of the works. The balance is released when the rectification period or defects liability period has ceased and the relevant notices under the contract has been issued to this effect.

It should be noted that simple interest will typically become due for the late release of retention monies from the employer to the contract/sub-contractor, once contractual prerequisites have been completed.

Practical Considerations

On smaller projects the amount of retention held may not be large enough to incentivise the contractor/sub-contractor to come back and rectify the defective works. The employer may wish to procure a retention bond (a topic for another day) in lieu of deducting retention monies from interim payments to cover this risk.

JCT forms of contract note that the employer is a trustee for the contractor/sub-contractor of any withheld retention money. As such the employer has an obligation to set aside any withheld retention money in a separate labelled account, rather than simply holding funds within a regular client account. This is to safeguard the contractor/sub-contractor in the event that the employer becomes insolvent at any stage or during the defects liability period.

Associate Quantity Surveyor

Charlotte Hill

Charlotte has a wealth of experience in construction and has enjoyed working on a range of projects from commercial and residential to mega projects such as the Olympics. Her key clients have included Land Securities, Meraas and the Olympic Delivery Authority to name a few. 

 Prior to The QS Company, Charlotte worked for industry leading construction consultants including Davis Langdon, Faithful+Gould in the Middle East and Alinea.  

 Charlotte is a member of the Royal Institution of Chartered Surveyors (RICS). 

Associate

Chris Roe

Chris has had 30 hugely enjoyable and fruitful years in the London construction market as a decorated Chartered Quantity Surveyor, working with several large blue chip main contracting organisations, including Bovis, ISG and Knight Harwood. Working on a diverse range of prestigious projects across all market sectors and contract forms, all with their unique challenges and logistical constraints, from heavy cut and carve refurbishment to new build.

More recently Chris held a Surveying Directors role and boardroom position, leaving 3 years ago to establish a successful property development business and providing project management and contract administration experience to The QS Company.

Business Development Manager

William Worsley

A highly experienced Business Development professional, skilled in initiating and consolidating business relationships within the Construction, Housing and Property industry.

Having worked in these areas for many years, I bring a wealth of experience and knowledge, and enjoy an excellent reputation, built on trust, mutual respect, diligence, and hard work, together with a passion for delivering successful projects on time and on budget.

Business Development Manager

Christian Suthers

Christian oversees the business development arm of Your QS Company, having joined the team at the start of 2021. Returning to his hometown of Preston from Texas, USA where he had been living and working for the past 8 years, he brings a wealth of experience in international business growth and profitability. His time overseas saw him managing relationships with HNW individuals and multi-national companies to bring successful marketing opportunities to fruition, working on deals worth in excess of $1m.”

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Rachel Suthers

Rachel ensures that the day to day running of the company is as smooth and effective as possible. With over 10 years’ experience in business management and back-office
operations in Dubai, London and Preston, she is key in making sure our business runs efficiently, up to date and ahead of the curve when it comes to business policies, procedures and new ways of working.

Director

Nigel Greene

With over 20 years of Board level business and property expertise, Nigel Co-Founded and operated multiple business units & projects from £1million – £250million, in the UK and internationally. Nigel personally invested into property assets accruing a significant international portfolio.

Director

Mark Stokes

With over 26 years of Board level business and property expertise, Mark has founded and operated UK based and international businesses deploying multifaceted global infrastructure projects from £1m– £1billion.

Director

Jake Suthers BSc Hons MRICS

Jake has an extensive experience across a wide range of residential and commercial developments ranging in value from £1m – £400m. He has successfully delivered numerous projects and core quantity surveying services for prestigious developers including U+I, Native Land, Sellar Property Group, Majid Al Futtaim and Macintyre Asset Management.

Prior to founding The QS Company in 2021, Jake worked for industry leading construction consultants including, Frank Whittle Partnership, Core Five and Faithful+Gould across the UK and Middle East.

Jake is a member of the Royal Institution of Chartered Surveyors (RICS).

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