Every contract you sign holds back a slice of your own money until months after you've finished the work — and most contractors only find out how much, and for how long, after they've already priced the job. Retention (UK) and retainage (US) are two names for the same mechanism, and both can quietly turn a profitable contract into a cash-flow problem. Here's what it actually costs you, when you get it back, and how to price the risk before you sign.
Contractors price the contract value but forget to price the cost of not having that money for months, sometimes years, after the work is done. Retention isn't a fee — it's an interest-free loan you give the client. On a large or long-duration contract, that's a real, calculable cost.
Retention is a percentage of each interim payment that the client withholds until specific milestones are reached. Under a standard JCT contract, the default retention rate is 5%, though many amended contracts push this to 3% or leave it at 5% with no cap negotiated. NEC4 contracts don't use retention by default — it has to be added as a secondary option (Option X16) — so always check whether it's actually in play before you assume a rate.
Retention is typically released in two stages: half at practical completion, and the remaining half at the end of the defects liability period (commonly 12 months later), once any defects have been made good and the certificate of making good defects is issued.
Retainage works the same way structurally — a percentage withheld from each progress payment — but the rules are far less standardised than in the UK. Under AIA A101/A201, the retainage rate is set by the owner in the contract, commonly 5–10%, and many states have their own statutory rules governing maximum retainage, reduction at substantial completion, and how quickly it must be released after final acceptance.
US retainage rules vary meaningfully by state and by whether the project is public or private. Before you price a job, check your state's prompt payment act — many states cap retainage, require it to reduce at substantial completion, or require it to be held in an interest-bearing escrow account. Don't assume the contract's stated rate is the last word.
| Feature | UK — Retention (JCT/NEC) | US — Retainage (AIA/State) |
|---|---|---|
| Default rate | 5% under JCT (NEC: not applied unless Option X16 selected) | Set by owner, commonly 5–10% |
| Standardisation | Consistent across standard JCT forms | Varies significantly by state statute and contract type |
| Reduction trigger | Practical completion (typically halves) | Substantial completion (varies by state) |
| Final release | End of defects liability period / making good certificate | Final acceptance, subject to state prompt payment rules |
| Escrow requirement | Not standard practice | Required in some states |
Retention isn't just "money you get later" — it has a real cost, because you're financing the client's project with your own working capital in the meantime. On a £1,000,000 subcontract at 5% retention, that's £50,000 sitting outside your bank account for the length of the contract plus the defects period. If your cost of capital (overdraft, invoice finance, or simply the return you'd otherwise get from that cash) is 8% a year, and the money is tied up for 18 months, that's roughly £6,000 of real financing cost — before you've even priced the risk of a dispute over release.
"Retention is the one line in the contract that never shows up as a cost on the estimate — and it's one of the most predictable cash-flow risks in the entire job."
A bond typically costs a fraction of a percent and releases your cash immediately, rather than tying it up for the length of the contract.
On longer contracts, ask for retention to reduce at a mid-point milestone rather than only at practical/substantial completion.
If the retention terms can't be negotiated, treat the financing cost as a real preliminary cost — not an afterthought.
If the contract allows unlimited set-off against retention, or retention with no defined release date, qualify it explicitly in your submission.
TenderScope reads every contract condition in your tender pack or bid package — retention rate, release triggers, set-off clauses, payment terms — and flags the ones that carry real risk, in 24 hours. First report free.
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