The Pros and Cons of Retentions in the Construction Industry

Let's take a deep dive into the intricate subject of retentions! Jacob conducts a comprehensive discussion on the manifold challenges and exasperations retentions can pose for subcontractors. This episode serves as a repository of invaluable insights and pragmatic guidance for subcontractors grappling with the intricacies of retention in the construction industry. 

KEY TAKEAWAYS

• Retentions are a small percentage (typically between 1.5% to 5%) held back from the payment of completed work on a project. This money is withheld from the contractor and subcontractor to ensure that any defects or issues are addressed before the full payment is made.


• Retentions are typically released in two stages: the first half is released upon achieving practical completion, and the second half is released after the defects liability period. Subcontractors need to ensure that their works are snag-free and that they obtain a practical completion statement to mark the completion of their work.


• It is common for contractors to hold onto retentions for longer than they should, causing delays in payment for subcontractors. Subcontractors should be proactive in monitoring and chasing their retentions to ensure timely payment.


• The Construction Act prohibits the linking of the main contract to the subcontract in terms of retention release. Once the subcontractor's defects liability period is up, they have the right to be paid the retention, regardless of whether the contractor's defects liability period is complete.


• Subcontractors should consider negotiating a retention cap with the contractor if they have a good working relationship. This allows for increased cash flow while still providing the contractor with some security for potential defects. However, a retention cap should be negotiated on an individual basis and should not compromise the quality of the subcontractor's work.

BEST MOMENTS
"So it's a small percentage, typically between 1.5 to 5%, which is held back from the payment of completed work on a project."
"Stopping the retention is just something that needs to be done to keep the contractor in the black."
"You're effectively leaving a cash flow hole that isn't going to get any better until you do something about it."
"The whole of the subcontract supply chain is likely in the same boat as you."
"If you're increasing your price, you're effectively costing yourself and the taxpayers out there."

HOST BIO
Meet Jacob Austin, a Chartered Quantity Surveyor with a rich background at industry giants Balfour Beatty, Kier, and Vistry Group. With extensive involvement in education, health, and residential projects spanning various scales, from £1000s to £100M, Jacob brings a unique perspective. Having collaborated with numerous small businesses, he's now committed to sharing his expertise to drive their success. Join Jacob on his podcast, where he blends his profound insights and personable approach to offer guidance, industry secrets, and inspirational stories.

LinkedIn - www.linkedin.com/in/jacob-austin/
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