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# The money you have already earned that isn’t late
- URL: https://blog.heygrand.com/construction-retention-credit-exposure/
- Published: 2026-09-01T09:07:59.000Z
- Updated: 2026-09-01T09:07:58.000Z
- Description: Retention is money you have earned that is withheld under the contract, so it never appears on an aged-debt report as overdue.
- Author: Kirk Donohoe
- Tags: Thoughts

**The money you have already earned that isn’t late**

Construction retention is a percentage of certified contract value withheld until agreed completion or defect conditions are met. Because it is withheld under the contract rather than paid late, it may not appear in an overdue-debt report even though the business that earned it remains exposed to whoever is holding it.

That gap is easy to miss. A subcontractor can run a clean ledger, chase nothing, and still be owed a large sum by a customer it currently has no claim against. The work was done. The value was certified. The money is simply not due yet, and under many contracts it will not fall due for a year or more after the job finishes.

**What construction retention is**

The Department for Business and Trade defines a retention clause as one that lets one party deduct or retain money equal to a percentage of the amount payable to the other for goods, services or works, of an interim payment, or of the contract sum, until a condition set out in the contract for release or partial release is met. That definition took effect for statutory reporting purposes in 2025 and is the most useful plain description available.

The commonly reported figure is 5% of contract value, released in two stages: half at practical completion, and half after the defects liability period ends. Government research in 2017 found a typical defects liability period of 12 months, with 24 months more common in house building. That leaves about 2.5% of contract value held during the defects period.

Two qualifications matter before anyone applies those numbers to their own book. First, the standard forms differ. The JCT default retention percentage is 3%, and the industry body BESA notes that main contractors often amend it upward, commonly to 5% and occasionally higher. NEC contracts contain no retention at all unless the parties select Secondary Option X16\. Second, retention only exists where the contract provides for it. It is a contractual term, not a feature of construction work, and the percentage, the release triggers and the timing all vary between agreements.

Retention also has nothing to do with retention of title, despite the shared word. Retention of title is a property mechanism under section 19 of the Sale of Goods Act 1979 that keeps ownership of goods with the seller until payment. Construction retention is a payment mechanism that withholds money and confers no ownership of anything. The [credit glossary](https://heygrand.com/blog/the-credit-glossary-the-formal-terms-and-the-slang/?ref=blog.heygrand.com) sets both out.

One more scope point. A supply-only contract is generally outside this regime. Section 105(2)(d) of the Housing Grants, Construction and Regeneration Act 1996 excludes the manufacture or delivery of building components, materials, plant or machinery from the definition of construction operations, except under a contract that also provides for their installation. A merchant supplying materials without installing them is usually not working under a construction contract at all, and would only face retention if its own contract specifically provided for it.

**Why retained money is not late payment**

An aged-debt report sorts money by how long it has been overdue. Retention does not qualify, because it is not overdue. The customer is holding it in accordance with a term both parties agreed. Nothing has gone wrong, no term has been breached, and there is nothing to chase.

This is the point at which two very different situations start to look identical in the accounts. A customer paying slowly is a customer whose behaviour has changed. A customer holding retention is a customer behaving exactly as the contract allows. The first shows up in the ledger. The second does not, and the amount at stake in the second can be larger.

The Housing Grants, Construction and Regeneration Act 1996 regulates payment but does not regulate retention itself. There is no statutory cap on the percentage, no statutory release timetable and no requirement to hold the money separately. The Act does one useful thing here: section 110(1A), in force since October 2011, means a payment mechanism is inadequate if payment depends on obligations being performed under another contract, which removed the practice of making a subcontractor’s retention release conditional on events further up the chain.

**How retention builds up across contracts**

A single retention balance on a single job is usually manageable. The exposure comes from the overlap. Retention from a contract completed eighteen months ago may still be outstanding when retention from three later contracts has already been withheld. The business is carrying several balances at once, each with its own release conditions and its own counterparty.

The government research behind the 2017 retentions consultation put the amount held at between £3.2bn and £5.9bn, with a central estimate of £4.5bn. Read that figure carefully: it covers England, it is an amount held over the course of a year rather than a stock at any one moment, and it is in 2015 prices. The same research estimated £229m a year, also in 2015 prices, lost when the party holding retention became insolvent, and found that 44% of contractors who had retention held from them in the previous three years had experienced non-receipt because another organisation failed.

Timing is the other half of it. That research found 71% of contractors with retentions held reported delays in getting them released. A balance that should have come back at practical completion can sit unresolved while the next three jobs add to it.

**How construction retention creates hidden credit exposure**

Retention is unsecured exposure to a specific counterparty for an extended period, and in most cases it is not protected in any way if that counterparty fails.

Retention money is not automatically held on trust. A trust arises only where the contract creates one and a separate fund is actually appropriated before insolvency. In Mac-Jordan Construction v Brookmount Erostin, the contract described the employer as trustee, but the clause requiring a separate bank account had been deleted and no fund was ever set aside. There were no identifiable assets subject to a trust, the bank’s floating charge took priority, and the contractor ranked as an unsecured creditor. Where a separate fund does exist, as in Rayack Construction v Lampeter Meat Co, the position is much better.

In practice the fund rarely exists. The 2017 government research found retention held in trust in less than 0.1% of contracts, and that more than 60% of tier one contractors surveyed used the retention money they held, for example as part of working capital or general expenditure. That is a legal use of the money under most contracts. It also means the balance a subcontractor is waiting on has often been spent, and its recovery depends on the holder still being solvent when release falls due.

An aged-debt report can show every invoice within terms while leaving retained exposure almost entirely out of view. The signal, the exposure and the commercial consequence are all there. They are simply recorded in a different place, or in many businesses not recorded at all.

**What to record separately**

The practical response is not to watch the customer more closely. It is to give retained value its own line in the exposure record, because a receivables report structured around due dates will not hold it. Worth capturing, per customer:

- Total retention currently held, by customer and by contract or project.
- The date each amount was withheld and the percentage applied.
- The contractual conditions for release, and whether release is staged.
- Expected first and final release dates.
- Certification and defects status against each balance.
- Concentration: how much retained value sits with a single contractor, or with companies in the same group.
- Any balance that has passed its contractual release point and has not been paid.

That last line is the one that converts a contract term into a credit signal. Retention that is late is a different matter from retention that is outstanding, and only a business that recorded the expected release date can tell the two apart. The concentration line matters for a related reason: retained value is exposure to one counterparty over a long period, which is the same structural problem as [depending on whoever pays your customer](https://heygrand.com/blog/second-order-credit-exposure/?ref=blog.heygrand.com).

**What the proposed reform may change**

The Commercial Payments Bill, currently before the House of Lords, includes a ban on retention clauses in the construction sector in its long title. As drafted after Committee stage on 21 July 2026, it sets a two-year period in which new retention clauses can be agreed and existing ones varied, allows deduction under those clauses for a further year, and requires all sums retained under them to be released at the end of the third year regardless of what the contract says. Report stage is listed for 15 September 2026.

It is a bill. It is not law, the provisions can still change, and the Commons stages are ahead of it. Anyone planning around a retentions ban is planning around a proposal. The nearer-term change has already happened: under regulations that apply to financial years beginning on or after 1 April 2025, larger companies must now report their retention practices alongside their payment practices, including the percentage rate used, the release mechanism, and two statistics on how much retention they withhold from suppliers. Build UK added those figures to its payment performance table in August 2026, reporting an average retention rate of 2% among its tier one contractor members. It is the first time any of this has been visible from outside a contract. We covered the wider payment reforms in [our digest on the 60-day payment terms proposals](https://heygrand.com/blog/uk-b2b-credit-digest-2026-07-25-60-day-payment-terms-statutory/?ref=blog.heygrand.com).

Every completed contract can add to the money being held before the previous contract releases it. That is the shape of the problem: exposure that grows through ordinary trading, sits outside the report designed to catch exposure, and is settled by events at another company months or years after the work was signed off. Retention is not a risk to be avoided, since it is a normal term of a normal contract. It is value that has to be tracked somewhere other than the aged-debt report, because that report was never built to hold it.

**Grand helps UK businesses see what changes at a customer after the account is open. Check a UK company for free with Grand.**