The case for abolishing retention, and why it has not happened

Retention has been the subject of consultations, private members’ bills and sustained industry campaigning for years. The arguments against it are well made and largely accepted, and it continues to be deducted on almost every construction contract in the United Kingdom.

The case against

It is lost at insolvency. Where retention is not held on trust, main contractor or employer failure means subcontractors lose it entirely. Estimates of the sums lost this way run into the hundreds of millions.

It is used as working capital. Money withheld as security for defects is, in practice, funding the holder’s business.

It is released late, or not at all. The second moiety is the most commonly unclaimed money in the industry, and the reasons are structural rather than deliberate.

It falls hardest on the smallest. A specialist subcontractor with retention held across many contracts carries a disproportionate share of the total, with the least ability to finance it.

The case in favour

It gives the employer a fund rather than a claim. Once final payment has been made, an employer facing a defect has to pursue a contractor that has moved on, may be difficult to engage and may no longer exist.

Retention converts that into a deduction requiring no litigation and no cooperation. That asymmetry is why employers defend it, and it is a real point rather than an obstructive one.

The alternatives, and their problems

• Retention deposit schemes, holding the money with a third party. Protects against insolvency and adds cost and administration.
• Retention bonds. Work well on larger contracts with sound contractors, and cost a fee that smaller firms may not be able to obtain at all.
• Project bank accounts. Address payment generally rather than retention specifically.
• Abolition with no replacement. Shifts the whole defects risk to the employer, which employers will price for elsewhere.

Each alternative moves the risk rather than removing it, and every party is willing to support the one that moves it away from itself.

Where that leaves a surveyor

Working with the mechanism as it stands and using the protections that already exist. Ask for the separate trust account at contract stage. Consider a bond where the contractor can obtain one. Track the release dates so the second moiety is not lost by inattention.

Those three things are available on every contract today and between them they address most of what the reform campaign is actually about.