What is a retention clause?

A retention clause  is a sum of money that is withheld from staged payments until the end of a project

It will be written into the contract

This is to give the client security for the future performance of the contractor. And to incentivise the contractor to fulfil all of their contractual obligations

In the event of unfinished works this money can be used to pay an alternative contractor to complete the works

An example of its use

For example you may sign a contract with a builder for a fixed sum of £100,000 and agree 5 key stages when they will be paid £20,000 each time

You may then stipulate in the contract that there is a 5% retention fee

This will mean that each staged payment will be of £19,000

When the builder says they are finished you will pay the last £19,000 but will still retain £5,000

If you then inspect the completed works and find items unfinished or the quality unsatisfactory you will then issue them with what is known as a snag list

A snag list is a list of items that need rectification

Once you are happy that the works have been finished to your satisfaction you then pay the last £5,000

Common complaints about builders

There are 2 very common things people say about their builder

The first is I have fallen out with my builder

The second is my builder is no good

If either of these apply to you , then you will be glad you have a retention clause in these circumstances

12 Months defects period

You may also decide that you want to insert a 12 month defects period into your contract

This means that even if you are satisfied that works have been completed to the agreed standard the builder will be liable for returning and fixing any issues that may arise in the next 12 months

For example 3 months after the project is completed you may find a leak has occurred. Or there is a persistent problem with the electrics

In this case you can write into the contract that 2.5% of the retention amount will be paid on Practical completion (this is the stage when the works have been completed to your satisfaction). And the remaining 2.5% will be paid on the expiry of the 12 months defects period

Are builders familiar with these?

Any reputable contractor will be familiar with these types of contract

However you may find resistance from smaller or inexperienced contractors who are not used to working to these conditions

For your own protection it is important to get the contractor to sign up to a contract with a retention clause inserted

Is rectifying problems the builders priority?

Once he has had his money in full you are no longer his priority

His priority is his next job and any snagging issues he has agreed to rectify will be done as and when he has time. That’s if he ever returns to fix them

Many people have found themselves in the position of having to pay someone else to fix them

When you start undertaking projects in the several hundreds of thousands it is a good idea to have a Professional third party as the Contract Administrator

This avoids you falling out with the builder over money and things getting personal


If you need help with contract administration please contact us. We have experience in administrating contracts on a wide range of projects across all sectors of the construction industry

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes:

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>