Retentions in construction are a percentage of each payment, typically a few per cent, that a client or main contractor withholds from a contractor or subcontractor as security against defects. Part is usually released at practical completion and the rest after the defects period. Retentions tie up significant working capital across the supply chain.
What it means
Retention terms are set in the contract, including the percentage, any cap, and when each portion is released. Because they are held back for long periods, sometimes over a year after completion, unpaid retentions can add up to a large amount of money owed to a business.
How it works in a UK business
Contractors should record retentions by contract and by release date, so they are chased on time. Retentions are often lost through missed release dates, disputes or the insolvency of the party holding them, which is why many firms review them every month alongside the cost value reconciliation.
When negotiating, firms may seek lower percentages, caps or a retention bond in place of cash retention.
Frequently asked questions
When should retentions be released?
It depends on the contract, but commonly half is released at practical completion and the balance at the end of the defects rectification period. Businesses should diarise both dates for every contract and apply for release promptly, because retentions are frequently missed simply because nobody chased them.
How do retentions affect cash flow?
Every retention is cash earned but not received. Across many contracts the total can be substantial, which squeezes working capital and can force a business to rely on overdrafts. Tracking retentions in the cash flow forecast gives a realistic picture of when the money will actually arrive.
Last updated: 5 November 2026