Retentions and recovery in Construction Contracts: A Subcontractors Guide

Retention in Construction Contracts

Construction contracts often include a Retention Clause, where some of the payment is withheld to make sure the contract is completed faithfully. In this way, where any defects and snags that are detected, the client can compel the Subcontractor to make the necessary repairs before the final payment is made.

Typically, this amount is between 3-5%.

Release of Retentions

Usually around half of the retained amount is released on completion of the project, and the remainder is paid at the end of a Defects Liability Period, and once any identified defects are rectified.

The retention acts as a security against poor workmanship or breach of contract terms, and provides an incentive to complete on time and on budget. However, it is important that the terms of this are agreed before signing the contract, so conflicts can be averted.

How Quantity Surveyors play a critical role

Ensuring a fair and smooth Retention and Release process is a key responsibility and this encompasses many duties:

  • Establishing Retention provisions: The Retention Clauses must be clearly defined in the contracts, including timelines and Release conditions.
  • Monitoring deductions: Deductions must be recorded and justified, so a Subcontractor's cashflow is not unduly affected.
  • Ensuring timely Release: Making sure Release is made on time is important both for the reputation of the client, and the cashflow of the Subcontractor.
  • Managing disputes: The Quantity Surveyor (QS) knowledge and experience plays a crucial role in resolving disputes, through detailed cost assessments and compliance checks.
  • Overseeing rectifications: Ensuring defects and snags are addressed within the liability period, so Release can take place on time.

At all stages, documentation and record-keeping are absolutely vital for this process, as resolving disputes relies upon a paper-trail that can be accessed reliably.

Challenges in Retention Release

Retention is one of the most common sources of dispute between client and Subcontractor, and there are many potential sticking points:

  • Delayed Release: Some clients hold back Retention sums beyond the agreed timeline, impacting a Subcontractor's income and cash flow.
  • Unclear or unfair contract terms: Where a retention clause is ambiguous or unreasonable, this can come back to haunt a Subcontractor.
  • Defect disputes: When is a defect a defect? A client who quibbles unreasonably over details can derail a Release.
  • Subcontractors: Where Subcontractors rely on third parties, who may also be subject to Retentions, this can cause immense complications.

Best practices to avoid complications

  • Clear contracts: Working with QS's and obtaining advice to make sure all Retention terms and conditions are completely unambiguous.
  • Regular communication: This allows potential areas for dispute to be identified early, and for deductions and defects to be documented thoroughly.
  • Early defect resolution: By addressing identified defects long before the Release time, this can negate delays.
  • Negotiations: Where disputes arise, a QS's expertise are critical in demonstrating where a contract has been fulfilled.

Keeping clients to their promises

Retention plays a vital role in construction contracts, protecting clients while ensuring quality work. However, its improper management can cause significant financial strain and disputes. A Quantity Surveyor's expertise is essential in ensuring retention is fairly implemented, monitored, and released on time—benefiting all parties involved. Effective retention management ensures smoother project cash flow, mitigates risks, and fosters better relationships between clients and Subcontractors.

For more information about Retention Management, contact QS and Estimating Consultants Ltd 01743 403120 or info@qsconsultants.co.uk