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Retention in construction contracts.

Retention is a percentage held back from each payment as security against defects. Understanding how it works — and how to secure timely release — is essential to maintaining cash flow and avoiding disputes at the end of a project.

Authored by Alexandr Vreme & Maksym Vasylkov
Published July 2026 — Next review July 2027

What is retention?

Retention (sometimes called “retentions” or “retention money”) is a sum withheld from each interim payment to provide the employer with security against defects that may arise after practical completion. It acts as a performance bond held by the employer until the contractor has satisfied their obligations under the contract.

The retained amount is released in stages, typically half at practical completion and half at the end of the defects liability period.

Typical retention rates

• Domestic contracts: 3% to 5% retention is common
• JCT standard form contracts: 3% retention is typical
• Government and large commercial projects: retention may be replaced by a bond or parent company guarantee

The retention percentage is deducted from the gross value of each interim certificate and accumulates until the retention limit (e.g. 3% of the contract sum) is reached.

Half release at practical completion

At practical completion — when the works are complete and ready for use — half of the total retention is typically released. This recognises that the contractor has fulfilled the main scope of works and the employer can take possession of the building.

The remaining half is held until the certificate of making good defects is issued at the end of the defects period.

Defects period

The defects liability period (or rectification period in JCT contracts) is typically 6 to 12 months from the date of practical completion. During this period, the contractor is responsible for rectifying any defects that appear and are not caused by normal wear and tear, misuse, or fair wear and tear.

Once all notified defects have been remedied, the contract administrator issues a certificate of making good defects, triggering the release of the second half of the retention.

Retention fund protection

For projects over a certain value, retention monies must be held in a designated trust account, protecting the contractor’s money from the employer’s insolvency. The Housing Grants, Construction and Regeneration Act 1996 and subsequent case law (notably Rock Advertising Ltd v MWB Business Exchange Centres Ltd) have reinforced the importance of protecting retention funds.

Contractors should always confirm in writing that retention is held in a separate trust account and request evidence that this requirement is being met.

Miniature example

• Contract value: £200,000
• Retention rate: 3%
• Total retention held: £6,000
• Released at practical completion: £3,000
• Released at end of 12-month defects period: £3,000

The £6,000 retention represents real cash flow that the contractor cannot access until the conditions are met. It should be factored into the contractor’s working capital projections from day one.

Questions to ask

• Is retention held in a designated trust account?
• Is there a bond alternative to cash retention?
• What triggers the certificate of making good defects?
• What is the defects liability period — 6 months, 12 months, or longer?
• Are there any conditions beyond defect rectification that delay release?