Construction retentions — typically 5–10% withheld from each progress payment as security for the subcontractor's performance — represent a significant portion of a subcontractor's working capital tied up in any active project. Recovering them at the appropriate time requires knowing when they become due, what documentation to provide, and what to do when a head contractor disputes the release.
When retentions are released
Most construction contracts provide for retention to be released in two tranches: half on practical completion of the subcontract works, and the remaining half at the end of the defects liability period (typically 12 months after practical completion). The specific timing depends on the contract — review your subcontract carefully to identify the release conditions.
Practical completion of the subcontract works is a defined concept — it is not the same as practical completion of the entire project, and it is not the date the subcontractor last worked on site. It is the date on which the works achieve a defined standard of completeness (usually with no outstanding defects, or only minor defects that do not prevent practical use). Some contracts require the superintendent or head contractor to formally certify practical completion — make sure that certification has been issued if it is a precondition of the retention release.
Making the retention claim
Issue a formal claim for the release of retention as soon as the applicable trigger event (practical completion or end of defects liability period) occurs. The claim should reference the contract clause, the date of practical completion or the end of the defects period, the amount of retention held, and the account to which payment should be made.
Follow up in writing if payment is not received within the time specified in the contract (or within a reasonable period if no time is specified — 14 days is a common commercial expectation).
What to do if the head contractor withholds retention
A head contractor may attempt to withhold retention on the basis of alleged defects, incomplete work, or set-off claims. If retention is withheld beyond the contractual release date without a legitimate basis:
- Issue a payment claim under the applicable Security of Payment legislation, specifically claiming the retention amount. Most SoP legislation covers retention claims in the same way as progress claims.
- If the head contractor provides a payment schedule disputing the retention, adjudication under the SoP Act is the fast-track resolution mechanism.
- Where Queensland's Building Industry Fairness Act project trust requirements apply, retention should be held in a trust account — request confirmation from the head contractor that the trust account exists and that your retention is held within it.
Contact Merion if you have retention amounts that have not been released following practical completion or the expiry of the defects liability period — we work with construction payment specialists to pursue these claims.