Subcontract retention, and who releases it

Retention downstream behaves like retention upstream, with two differences that matter: there are more of them, and they release at different times.

A main contractor with fourteen packages holds fourteen retentions, each with its own percentage, its own completion date and its own rectification period. Upstream there is one, and it belongs to a job everyone is still thinking about.

Why downstream release is missed more often

The package finished long ago. A groundworks subcontractor completes in month four of an eighteen month job. Its retention releases run from its own completion, but by then the site team is dealing with fit-out.

Nobody is chasing. Small subcontractors frequently do not chase retention, either because they lack the administration to track it or because they do not want to press a main contractor they hope to work for again. Silence is not evidence that the money is not owed.

The trigger is a document, not a date. Release commonly depends on making good of defects, which depends on a certificate or an inspection that nobody has arranged.

Staff change. The surveyor who placed the package has moved on. The retention is a figure on a schedule that no longer means anything to anyone reading it.

The commercial and ethical position

Two things are true at once.

Retention is security, and holding it until obligations are met is what it is for. A main contractor releasing retention before defects are made good has given away its remedy.

And: retention held past the point where it is due is somebody else's working capital. On small subcontractors it is often a material sum relative to the business. Late release is a well documented pressure in the industry supply chain, and it is a reasonable thing to hold your own practice to a standard on.

The reconciliation between those two is not complicated. Release when it is due, and make "when it is due" a date somebody owns.

Making it a scheduled event

Every package should carry, from the day it is placed:

• Retention percentage, and whether it halves at completion of the package
• Date of completion of the subcontract works
• Rectification or defects period, and the date it ends
• What triggers final release, and who is responsible for obtaining it
• Amount currently held, kept current rather than calculated when asked

Those five items make retention a diary entry. Without them it is an archaeology exercise, and the effort of the exercise is usually greater than the sum, which is exactly why it does not happen.

Where the differential bites

Holding 3 per cent downstream while suffering 5 per cent upstream is a permanent funding cost for the duration of the job. It is not recovered by the timing of anything; it is simply a gap in working capital that has to come from somewhere.

It should be a deliberate choice made at procurement with the number known, rather than an accident of using a subcontract template whose percentages were set for a different job.

Retention bonds

Worth considering on larger packages. A bond replaces cash retention with a guarantee, so the subcontractor keeps its money and the contractor keeps its security.

The trade-offs are real: the bond costs the subcontractor a premium, which will find its way into the price, and calling on a bond is a more deliberate act than deducting from a payment. But on a package where retention would run to tens of thousands over two years, it is a conversation worth having at tender rather than never.