The estimated total sum retained over the course of a given year is substantial; £3.2 billion – £5.9 billion. In this eGuide, Payapps explores retention in construction, including a brief guide on how the retention process works, retention construction law, and current legal debates.
The Contractor’s Guide to Retention Payments
There has been a long-standing debate in the UK construction industry about the future of retention practices, mainly due to the amount of money at stake and the complex nature of managing construction retainage.
What are retentions in construction?
Retention is when a percentage of payment on a construction project is withheld until the contracted work is completed to an acceptable standard.
In theory, it should work well, as the subcontractors will be keen to be paid and ensure the work is completed quickly and satisfactorily. However, the lack of cash flow for the subcontractor is often problematic, and they frequently ‘pass on’ the retention further down the chain.
If insolvencies then cause a loss of these retention payments, it has a significant impact on cash flow throughout the supply chain. The practice, therefore, feels disproportionate to what it is trying to achieve.
Issues surrounding current retention practices
There are mixed feelings about retention within the industry depending on where in the chain a company sits. When the issue was debated in Parliament in January 2021, Lord Stunell summed it up: “…there is no consensus within the industry because there are winners and losers. The winners of the present system are the big companies; the losers are everybody else. The current retention scheme undermines trust and confidence, destroys capacity and deters long-term investment in training and skills.”
Download the Payapps Retention eGuide for everything you need to know about managing retention
The eGuide covers a range of topics, including:
- What is retention in construction and what’s the purpose of retention money?
- Retention in construction accounting – how does the retention process work?
- The current debate around construction retention
- Retention construction law and how to mitigate the risk of retention payment delays
- The process to follow if payment is not released when expected.
