Retention is one of the most contentious issues in UK construction. It's a mechanism that holds back a percentage of each payment as security for defects, but in practice it often becomes a tool for main contractors to hold onto subcontractors' money for far longer than is reasonable.
Here's what you need to know about retention, your rights, and how to protect yourself.
What Is Construction Retention?
Retention (or "retentions") is a percentage of each interim payment that the payer withholds as security. The idea is that if defective work is discovered, the payer has funds available to rectify it without having to chase the subcontractor for money.
Retention is typically released in two stages:
- First half. Released at practical completion of the subcontract works.
- Second half. Released at the end of the defects liability period (typically 12 months after practical completion).
This is common practice, not a legal rule. Release depends on what your contract says.
How Much Retention Is Normal?
Retention is typically 3% to 5% of the gross valuation, halving at practical completion when the first half is released.
Some contracts set higher percentages. Anything above 5% is excessive and should be challenged during contract negotiations. The retentions view of our payment league table shows which large contractors hold retentions and at what rate, from their own government reports. Similarly, any defects liability period longer than 12 months is unusual for standard building works.
What Large Contractors Report About Retention
Since April 2025, large companies with construction contracts have had to say in their payment practices reports whether they use retention clauses, what standard rate they use and how much they actually held back. Of the 93 contractors and housebuilders we list that have filed these figures, for six-month periods ending between March and August 2026:
- 79 (85%) use retention clauses with their suppliers.
- Of the 40 that gave a standard rate, 28 use 5% and 12 use 3%.
- The retention they actually held back was a middle figure of 2% of what they paid suppliers under construction contracts.
- 48 of the 79 said they make sure the retention terms they set for suppliers are no more onerous than the terms their own clients apply to them. The other 31 did not say so.
You can see each company's figures in the retentions view of our payment league table, and work out how much retention a job would tie up with the cash tied up calculator.
The Problem With Retention
In theory, retention is a reasonable mechanism. In practice, it causes serious problems for subcontractors:
- Cash flow impact. 5% retention on a £500,000 subcontract is £25,000 held back from your business. For smaller firms, this can be the difference between paying wages and not. Our cash tied up calculator adds retention to the unpaid work you carry on a job, using the contractor's own reported payment days and retention rate.
- Late release. Retention can sit unpaid long after the release date unless you chase it, even when there are no defects.
- Insolvency risk. If the main contractor goes insolvent before releasing your retention, you're an unsecured creditor and will likely never see that money. The Construction Leadership Council estimates that about £223 million of retention is lost to insolvency every year, with £4 billion to £6 billion held across the industry at any one time (Small Business Commissioner). Our register of 229 UK construction failures shows how many sizeable firms have gone under.
- Administration burden. Tracking retention across multiple projects and chasing release dates adds overhead that small businesses can ill afford.
Retention Reform: What the Law Is Now and What Is Proposed
The law now. Cash retention is lawful. There is no statutory cap on how much can be held and no statutory deadline for release. Your contract decides both.
The campaign. The Specialist Engineering Contractors' Group backed a 2017 to 2019 Private Member's Bill that would have protected retention in deposit schemes. It did not become law. Build UK runs a Roadmap to Zero Retentions, and some main contractors have already moved to zero retention or retention bonds.
What is proposed. In its March 2026 response to the late payment consultation, the Government said it intended to prohibit cash retentions in construction contracts. The Commercial Payments Bill, introduced in the House of Lords on 19 May 2026, would insert new sections 113A to 113F into the Construction Act. As drafted:
- a two-year transition period would start on a date the Government sets once the Bill is law
- retention clauses agreed after that period would be void
- retention clauses agreed or varied during the transition period would stop having effect at the end of it, with rules for paying back money still held
- after the transition, a payer that wrongly withholds retention would owe a fixed sum (the higher of £40 or half the amount withheld) on top of the money itself
Not yet law. On 14 October 2026 the Bill was still in the House of Lords and its detail could change. Until a ban takes effect, retention terms are whatever you agree in your contract.
Alternatives to Cash Retention
During contract negotiations, consider proposing alternatives:
- Retention bond. A guarantee from your bank or insurer that covers the retention amount. You keep your cash; the contractor has equivalent security.
- Parent company guarantee. If you're part of a group, a guarantee from the parent company may satisfy the contractor's need for security.
- Reduced retention. Negotiate 3% instead of 5%, or propose a cap on the total retention amount.
- Earlier release. Negotiate for retention to be released at sectional completion rather than overall practical completion.
What To Do When Retention Won't Be Released
Step 1: Check Your Contract
Confirm the retention release dates and any conditions. Make sure practical completion has been certified (or should have been).
Step 2: Submit a Formal Request
Write to the contractor referencing the contract clause, confirming the release date has passed, and requesting immediate release of retention.
Step 3: Apply Under the Contract
Submit a formal application for payment for the retention amount. This triggers the payment notice obligations under the Construction Act.
Step 4: Adjudicate If Necessary
If the contractor still won't release retention, you can refer the matter to adjudication. Retention is a payment due under the contract like any other, so the usual adjudication route applies.
Protect Yourself From the Start
The best time to address retention is before you sign the contract, not after practical completion when you're trying to get your money back. Negotiate fair terms upfront, and research the contractor's record on releasing retention.
Large companies now have to report on this. For financial years beginning on or after 1 April 2025, companies over the payment reporting thresholds with construction contracts must say whether they use retention clauses and, if so, their standard rate and how retention is released. The reports are free on Check Payment Practices, and Construction Rating's company pages show this where it has been reported (how our signals work).
Ask subcontractors who have worked for the contractor too. A pattern of retention problems is unlikely to change for your project.
Construction Rating lets subcontractors review the main contractors they work for. If you've worked for one, add your experience.