Use of cash retentions in the construction industry

Cash retention is widely practised in the construction industry in the UK, although it is not universally used. It is “a sum of money withheld from the payments of a construction sector project in order to mitigate the risk that such projects are not completed… to the required quality standard.”

They are a means of incentivising the contractors to complete the work to a good standard, and to return to rectify issues during a specified time period (the ‘defects liability period’).

The retentions are primarily held by the Tier 1 construction firm (the main contractor). The retention will usually cascade down throughout the supply chain. It is usually written into contracts, and only a small number of clients have waived their right to hold retention funds.

The total sum of held retention is around £3.2 billion to £5.9 billion (2015 prices) for the construction sector in England over the course of a given year.