Retention: the employer holding back on the certificate

Retention is money the employer keeps back from each interim payment certificate as security that the contractor will finish and make good. It is not a charge and it is not lost. It is the contractor cash, held, and the whole discipline is making sure it comes back on time.

How it is taken

On a JBCC certificate retention is a percentage of the gross value of work certified, deducted before VAT. The percentage applies cumulatively, so as the gross grows the amount held grows with it, up to the limit the contract sets. Once that ceiling is reached, no further retention is taken even as the certified value keeps rising.

• Off the gross. Retention comes off the certified value, then VAT at 15 per cent goes on the net that remains.
• Up to a limit. The held amount is capped, so the deduction stops once the ceiling is hit.
• On all certified work. Variations are certified work too, so they carry retention like everything else.

Release comes in stages

Retention does not all come back at once. A portion is released at practical completion, when the works are handed over and put to use, and the balance is released at the end of the defects period once the contractor has made good. Each release is tied to a milestone, and each milestone is a date.

This is where money gets stranded. The half released at completion is usually collected because it is large and obvious. The final tranche, released after defects, is smaller and quieter, and it is the one that sits forgotten in an employer account long after the contractor has left site.

A reduced retention bond is an option

On some jobs the contractor can substitute a bond for cash retention, freeing the money for use elsewhere while leaving the employer secured. Whether that is available depends on the contract and the parties, but where it is, it turns dead cash into working capital, which matters on a tight cash flow.

The habit

Track the retention held as a running figure every certificate, not as an afterthought at the end. Record the two release dates the day practical completion and the defects period are fixed, and chase each one when it arrives. The retention you forget to claim is the cleanest profit you will ever give away.