Retention Clauses: What They Protect and When They're Released

Retention is a percentage of each payment certificate withheld by the client until the contractor has demonstrated the work is complete and defect-free. It's a standard mechanism, typically 5-10% of certified value, and it exists to give the client leverage after the contractor has been paid for the bulk of the work.

Half of the retained amount is usually released at practical completion, when the building is handed over and fit for use but minor defects may still be outstanding. The second half is released at the end of the defects liability period, commonly twelve months later, once the contractor has rectified any defects that emerged during normal use.

Disputes tend to start over what counts as 'practical completion' when there's a long snag list, or over whether a defect reported in month eleven was actually caused by the original works or by subsequent use. Clear, specific contract drafting, defining practical completion criteria and the process for logging and verifying defects, prevents most of these arguments before they start. Vague retention clauses are not a protection; they're a future negotiation.