Close
When you look at your building contract and see a clause about retention, it’s easy to gloss over it. Five or ten percent held back doesn’t sound like much when you’re focused on the big numbers. But on an £80,000 extension, that’s up to £8,000 sitting somewhere until months after the work finishes. For many Manchester homeowners, retention is confusing. Why is the contractor being paid less than they’re owed? When do they get the rest? And most importantly, is this actually protecting you or just delaying payment for work that’s been done? This guide explains exactly what retention is, how it works in practice, when it protects you and when it causes problems, and what the 2025 regulatory changes mean for your building project in Manchester.
Retention is a percentage, often 5%, of the amount certified as due to the contractor on an interim certificate, that is deducted from the amount paid and retained by the client. Think of it as a security deposit that works in reverse. Instead of you paying money upfront that gets returned at the end, the contractor earns money throughout the build but doesn’t receive all of it until after completion and any defects are fixed.
Typically, retention in a construction contract is set at between three to five per cent of the overall project value. On residential projects in Manchester, 5% is standard, though some contracts use 3% and others go as high as 10% for complex or high-value work. The contractor still receives stage payments as work progresses, but the retention percentage is deducted from each payment and held back.
The intention is to provide for partial payment as the work progresses and to defer final payment until completion of all obligations under the contract. Retention serves several purposes including encouraging contractors to finish the work properly, providing funds to fix defects if the contractor doesn’t return, and giving you leverage to ensure snagging items are addressed.
Retention doesn’t sit there until the very end of the project. It’s typically released in two stages under most standard contracts. Half of the retention is released on practical completion, the other half on the expiry of the defects liability period.
Practical completion means the work is substantially finished and you can start using the space, even if minor snagging items remain. At this point, which is usually confirmed by your architect or contract administrator, the first half of retention is released to the contractor. For a £100,000 project with 5% retention, that’s £2,500 paid at practical completion.
The defects liability period, also called the rectification period, typically runs for six to twelve months following practical completion. During this time, if any defects appear that result from poor workmanship or materials, the contractor must return and fix them at no cost to you. Once this period ends and any defects have been made good, the second half of retention is released. That’s another £2,500 in our example.
So from the contractor’s perspective, they’ve completed all work but they’re waiting 6 to 12 months for their final £2,500. From your perspective, you’re protected for almost a year after moving into your new space because the contractor has a financial incentive to fix any problems that emerge.
Retention has been controversial in the construction industry for years, with evidence that cash retentions have been used to shore up working capital, and concerns that if suppliers become insolvent, small businesses risk losing their retentions. This led to significant regulatory changes.
From 1 March 2025, certain companies are required to report the retentions they hold and their retention practices under amendments to the Reporting on Payment Practices and Performance Regulations 2017. Companies must now report which contracts use retention clauses, minimum contract values for retention, how they ensure subcontractor terms aren’t harsher, processes for releasing retention, and the value of money retained.
For homeowners, this increased transparency means larger contractors are now publicly accountable for their retention practices. Criminal sanctions for directors, potential fines, and reputational damage make these regulations impossible to ignore. If you’re working with a contractor who falls under these reporting requirements, their retention practices should be fairer and more predictable than in the past.
The Construction Leadership Council has been working toward eliminating cash retention entirely, with the industry committed to achieving zero cash retention, though timelines have slipped from the original 2025 target. Some standard contracts like NEC forms no longer include retention as standard, though it can still be added if both parties agree.
When retention works as intended, it’s a valuable protection mechanism. Here’s what it actually protects you from.
At practical completion, your extension or renovation might be 95% perfect but with a list of minor issues. Paint touch-ups needed, a door that sticks, a tile that’s cracked, sealant that needs redoing. These snagging items should be fixed before you release final payment. If you’ve already paid the contractor in full, their motivation to return for minor fixes drops dramatically. With retention held back, they have £2,500 or more sitting there waiting for them, which provides real incentive to complete the snagging list properly.
Some problems don’t show up immediately. A poorly fitted window might not leak until heavy rain hits it from a particular direction. A heating system might work fine in autumn but fail when winter really sets in. Plaster might look perfect when first painted but develop cracks as it fully dries out. The defects liability period with retention gives you protection during this discovery phase. If issues emerge and the contractor won’t fix them, you can use the retention to pay someone else to do it.
If your contractor goes bust before finishing the project, having already paid 95% of the contract value rather than 100% gives you slightly more resources to get someone else to complete the work. It’s not a complete solution because the retention alone won’t cover the cost of bringing in another contractor, but it helps. More importantly, it means the contractor hasn’t been overpaid for incomplete work.
Knowing that retention is sitting there unpaid gives you negotiating power if disputes arise about quality or specification. The contractor wants their money, which makes them more willing to discuss and resolve issues rather than walking away or digging in. This isn’t about using retention unfairly to force changes outside the contract, but it does mean you’re not powerless if legitimate quality concerns need addressing.
While retention protects clients, it creates real issues for contractors, especially smaller businesses working on tight margins.
Retentions can be large amounts of money and may cause cash flow problems for contractors. If a small contractor is working on three projects simultaneously, they might have £15,000 to £20,000 tied up in retention across those jobs. That’s working capital they can’t use to pay their workers, buy materials for the next project, or cover their business overheads.
Vast sums of withheld retentions exist in the construction industry and often they are never paid. Some clients use technical contract clauses to delay or avoid releasing retention. Others simply ignore requests for payment, knowing the contractor would need to take legal action to recover what’s owed. For a contractor owed £2,000, the cost and hassle of legal proceedings might not be worth it.
The issue cascades down the supply chain. Main contractors hold retention from clients, so they hold it from their subcontractors too. Those subcontractors might be small businesses for whom even £500 in retention represents a significant proportion of their monthly income. If Tier 1 suppliers become insolvent, small businesses in the supply chain are at risk of losing their retentions.
For you as a homeowner, this matters because contractors who are struggling with cash flow might cut corners, use cheaper materials, or prioritise other jobs where they’re being paid promptly. A contractor who’s waiting for £10,000 in retention from previous jobs might not have the resources to handle problems on your job properly.
If you’re negotiating a building contract for your Manchester project, here’s how to handle retention sensibly.
Standard retention is 5% but this is negotiable. For very small projects under £20,000, retention might not be worth the administrative hassle and you could agree to nil retention or a fixed amount rather than a percentage. For larger projects or those with complex specifications, 5% to 10% is reasonable and protects you proportionally to the risk and value involved.
Don’t just accept whatever the contract says. Discuss how long the defects liability period should run. Twelve to twenty-four months is typical, with twelve months being most common for standard residential work. Longer periods give you more protection but mean the contractor waits longer for their money. Six months might be acceptable for simple internal refurbishment where defects will show up quickly. Anything less than six months is too short to be useful.
Practical completion needs a clear definition in your contract. Is it when you can move in, when all snagging is done, or something in between? Ambiguity here causes disputes about when the first retention payment is due. Most contracts say practical completion is when the works are substantially complete and you can beneficial occupy the space, with minor snagging items noted but not preventing handover.
Your contract should specify exactly how retention is released. Who certifies practical completion? Who certifies that defects have been made good? How long does the client have to make payment after certification? On domestic projects, these roles often fall to the homeowner directly or to their architect if one is appointed. Make sure the process is clear so there’s no confusion when it’s time to release money.
An alternative to holding cash retention is a retention bond. The contractor provides a bond from an insurance company that guarantees payment if they don’t fulfill their obligations. This means you get the protection of retention but the contractor gets their full payment as work progresses. Bonds are expensive and therefore not often used, but they solve the cash flow problem for contractors and some are willing to absorb the cost.
If you reach the end of the defects liability period and the contractor hasn’t been paid their retention despite completing all obligations, they have several options under UK law.
The Housing Grants, Construction and Regeneration Act 1996, commonly called the Construction Act, provides payment protections for contractors. If retention isn’t paid when due, the contractor can issue payment notices and if these are ignored, pursue adjudication to resolve the dispute quickly. Adjudication is a form of alternative dispute resolution specific to construction that delivers binding decisions usually within 28 days.
Unless your construction contract does not require retention, there is nothing you can do which will guarantee payment on time, as it is the same as an unpaid invoice. For contractors, the reality is that recovering retention is not at the forefront of most businesses’ minds as focus and resource has turned to other projects, meaning many construction companies are losing out on thousands of pounds of unrecovered retention.
As a homeowner, you should pay retention promptly when it’s due. Withholding it unfairly damages your relationship with the contractor, exposes you to legal action, and gives you a reputation that will make other contractors reluctant to work for you. If you genuinely have concerns about defects or incomplete work, document them clearly and engage with the contractor about resolving them rather than simply refusing to release retention.
How retention works varies depending on which contract form you’re using. JCT contracts, which are common on UK residential projects, include detailed retention provisions with clear processes for release. The JCT Design and Build Contract is one of the most popular for domestic extensions and sets out retention at clause level.
NEC contracts, which are increasingly used even on smaller projects, have moved away from retention as standard following lobbying from the Construction Leadership Council. Retention clauses are no longer standard in NEC contracts, though they can be included if both parties agree.
Bespoke contracts written by contractors themselves vary enormously in quality and fairness. Some include retention terms that heavily favour the contractor, such as linking second-half retention release to events outside your project or allowing them to claim retention early if they provide a bond. Always get bespoke contracts reviewed by a solicitor with construction experience before signing.
