Expert Witness Journal Issue 68 August 2026 - Flipbook - Page 58
may be signi昀椀cant delays in the retention being
released. Taking legal action to recover retention
can be disproportionate in terms of costs.
•
once the ban is in force (ie after transition
period), variations to pre-existing retention
clauses would be void unless the provision
makes the retention clause more favourable for
the payee. (Section 113D)
•
after the transition period, if there is a breach
of these provisions and the deduction of an
unauthorised sum, then an implied term will
impose a penalty of the higher of £40 or 50%
of the retention debt (in addition to any interest
payable and compensation for late payment).
(Section 113E).
The proposals
The two proposals put forward in the government
consultation were:
1.
an outright ban on the use of retention
clauses or
2.
mandatory protection of retention sums.
The government’s preference is an outright ban, and
this is re昀氀ected in the new Bill which was formally
introduced to Parliament on Tuesday 19 May 2026.
While we recognise the Bill is still in the early
stages of becoming legislation, the Bill addresses
the abolition of retentions in construction contracts
and makes other changes to commercial payment
practices.
Although no set timeframe has been given for when
the Bill will become legislation, it is clear from the
昀椀rst reading in May and a second reading scheduled
for early June 2026, that Parliament are working
towards progressing the Bill. Progress to date has
been swift, but with the transitional period it will be
at least two to three years until the full e昀昀ects of the
ban on retentions are seen in practice.
Amendments to the Construction Act and
standard form contracts
To avoid falling foul of the new legislation, any
changes in the law will need to be addressed in
standard form contracts and bespoke contracts
which expressly refer to retention clauses. This is
because the legislation cannot be contracted out of
and will take precedence over contractual provisions.
The Bill introduces the new measures through
proposed amendments to the existing Housing
Grants, Construction and Regeneration Act 1996
(the Construction Act). These will have prospective
e昀昀ect ie will apply to contracts made after the
amendments come into force. In relation to retention,
the Bill would achieve this by inserting new sections
113A to 113F into the Construction Act[5]. The Bill
amends the Construction Act in the following ways:
•
•
Following the release of the JCT 2024 suite of
contracts (which followed the 2016 editions), we wait
to see how JCT intend to deal with the necessary
amendments to the standard form ie will they update
the form or issue amendment sheets. If the latter,
this comes with the risk that amendment sheets
might be missed or forgotten by the parties and the
new legislation not followed or followed incorrectly.
introducing a de昀椀nition for retention as “the
practice by which one party to a construction
contract (“A”) deducts or retains sums of money
equating to a percentage of— (a) the amount
payable to another party to the construction
contract (“B”) for any goods, services or works
supplied by B, in accordance with the terms of
the construction contract between A and B, (b)
an interim payment payable to B in accordance
with the terms of the construction contract
between A and B, or (c) the contract total of
the construction contract, until any condition
for release or partial release of the sums to B
(whether included in the construction contract
or in an agreement relating to sums payable
under that contract) is met.’ (Section 113A (1))
Considering the options
Notwithstanding that the government’s preference
is an outright ban, we have explored both options as
this informs the debate about retentions.
Option 1: Outright ban
This is what is envisaged by the new Bill. An outright
ban would make it unlawful for the paying party
to deduct and withhold retention money under a
construction contract. Although the simplest option
in theory, this approach raises several practical
concerns.
introducing a two-year transition period from
the date section 113B comes into force before a
full ban. During this period retention clauses
will be permitted in contracts
•
at the end of a three-year period, (“the last
retention day”), such retention clauses will be
ine昀昀ective and the “transitional retained sum”
will be repayable. (Section 113B)
•
at the end of the transition period, retention
clauses included in construction contracts
would be void. (Section 113C)
EXPERT WITNESS JOURNAL
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Risk of circumvention
Employers and contractors may start to
undervalue or take a more conservative
approach to valuing executed works, giving the
employer or contractor an alternative way of
retaining a portion of the payment creating a
‘backdoor retention’.
AUGUST 2026
