Expert Witness Journal Issue 68 August 2026 - Flipbook - Page 57
The reshaping of retentions:
what’s next for retentions in
construction contracts?
by David Banks, Partner, Ruth Wilkinson, Legal Director and Professional Support Lawyer
& Niké Jacobs, Associate at Hill Dickinson.
main contractor) to withhold a percentage of the
overall contract sum (usually around 3% to 5%) from
payments made to contractors and sub-contractors,
known as the retention sum. Half the retention sum
is typically released at practical completion, with the
昀椀nal half released once the certi昀椀cate of making
good defects has been issued. In reality, some or all
of it is never returned at all and that is fuelling the
drive for reform in this area.
The abuse and delays in repayment of retention
monies have been an industry wide issue in
construction for many years. Over the previous
ten years numerous e昀昀orts to reform retentions
have been unsuccessful including a Pye Tait
report, 2018 consultation, private member bills
and lobbying within the industry. However,
after decades, the relentless lobbying by parts
of the construction sector has 昀椀nally resulted
in the Labour government committing itself to
tackling late payments and culminated in last
year’s consultation which we wrote about in a
previous article here. The government published
its response to the consultation in March 2026[1],
leading to the Commercial Payments Bill (the Bill)
being published in May 2026.
Retention is widely used as a form of security in
construction contracts. The purpose of a retention
is largely to:
The value of retentions is signi昀椀cant. In 2017 an
estimated £3.2 billion to £5.9 billion was withheld
in retentions in the construction sector in England
annually[2], with an estimated £223 million of
retention payments lost due to insolvency each
year[3]. In March 2026, administrations in the
construction industry reached the highest levels
since 2023[4]. The increasing levels of insolvency,
along with nearly a quarter of a billion pounds at
stake, are clear indicators that ignoring the problem
with retentions is unsustainable. Insolvency is
a signi昀椀cant issue in the construction industry
and disproportionately a昀昀ects small and medium
enterprises (SMEs) who reside at the delivery end of
the supply chain.
ensure the contractor or sub-contractor’s
performance of its obligations under the
contract (ie facilitating the recti昀椀cation of
defects before the end of any recti昀椀cation or
defects liability period) and
•
provide the employer or contractor with a sum
of money to complete the works if the contractor
or sub-contractor fails to do so as required.
The lack of governance around the deducting and
withholding of retention means the practice is
open to abuse. The standard form JCT D&B 2024
envisages the employer will hold the retention
money in a separate bank account on trust for the
contractor. This provision is routinely deleted.
Employers and contractors often work to very small
pro昀椀t margins. Deducting and holding retention
money provides employers and contractors with
a third party’s money which is often used to assist
their own cash 昀氀ow. If the retention money is not
ringfenced and kept separate from an employer or
contractor’s own money, in situations of upstream
insolvencies, contractors and sub-contractors lower
down the supply chain may 昀椀nd themselves deprived
of the return of retention monies (ie between 1.5% to
5% of the value of their works). In other situations,
the retention may only be paid back in part or there
In this article we will focus solely on the government’s
proposed reforms to address retention payments and
will consider some of the potential consequences.
What is retention?
Retention clauses allow the paying party under a
construction contract (typically the employer or
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AUGUST 2026
