Retention is one of the most significant financial risks facing SME subcontractors in the UK. Billions of pounds sit in retention across the industry at any one time — money that belongs to subcontractors but is held by main contractors as security against defects.
When the system works as intended, retention is manageable. When it doesn't — when main contractors hold it beyond the agreed period, deduct it unfairly, or become insolvent before releasing it — the consequences can be severe.
What is Retention?
Retention is a percentage of your interim payments that the main contractor withholds as security. It's designed to ensure you return to complete any defective work during the defects liability period after practical completion.
Under a standard JCT subcontract, retention works as follows:
- A percentage — typically 3% under JCT 2024 standard terms — is deducted from every interim payment
- Half the total retention held is released at practical completion of your subcontract works
- The remaining half is released at the end of the defects liability period — typically 12 months after practical completion
On a £300,000 subcontract at 3% retention, that means up to £9,000 of your money can be held at any one time. At 5% — a common non-standard amendment — that rises to £15,000.
What Changed in JCT 2024?
Standard Rate Reduced to 3%
The JCT 2024 reduced the standard retention rate from 5% to 3%. On a £300,000 contract this is the difference between £15,000 and £9,000 being held back — a meaningful improvement for subcontractors.
This reduction only applies if you're signing a standard JCT 2024 form without amendments. Many main contractors are issuing contracts with 5% retention as a non-standard amendment. Always check the specific rate in your contract before signing.
Clearer Release Mechanisms
The JCT 2024 improved the clarity of when retention should be released. The trigger for the first release is practical completion of your subcontract works — not practical completion of the main contract, which can occur significantly later.
Make sure your contract clearly states that the first retention release is triggered by completion of your works, not the main contract. A vague clause can delay your money by months or years.
The Insolvency Risk — Post-Carillion
The collapse of Carillion in January 2018 was a watershed moment for retention in UK construction. Hundreds of subcontractors lost their entire retention when Carillion went into liquidation — because that money was sitting in Carillion's general bank account rather than being protected.
Subcontractors who lost retention became unsecured creditors. In a liquidation, unsecured creditors typically receive pennies in the pound — if anything at all.
Despite significant campaigning since Carillion, there is still no legal requirement to protect retention money in a trust account or bond. The JCT 2024 does not mandate retention protection.
Whenever you sign a contract with retention, you are exposed to the risk of losing that money if the main contractor becomes insolvent. This risk is proportional to the financial health of the main contractor and the length of time your retention is held.
How to Protect Yourself
1. Check the Retention Rate
Before you sign, check the specific retention rate in your contract. The JCT 2024 standard is 3%. If your contract says 5%, push back — the JCT 2024 standard is your reference point.
2. Check the Release Triggers
Make sure the first retention release is triggered by completion of your works. Check that the defects liability period is clearly defined and not extended beyond 12 months without good reason.
3. Request a Retention Bond
A retention bond is a financial instrument issued by an insurer or bank that guarantees your retention will be paid even if the main contractor becomes insolvent. On contracts above £100,000, it's a request worth making.
4. Request a Retention Trust Account
Alternatively, request that retention money is held in a dedicated trust account. Money held on trust is protected in insolvency — it doesn't form part of the insolvent estate. This is the gold standard of retention protection.
5. Monitor Your Retention
Keep a running record of all retention deducted and released on every contract. When practical completion occurs, follow up immediately on the first release. Don't assume it will happen automatically.
6. Check the Main Contractor's Financial Health
Before committing to a large contract with significant retention exposure, check the main contractor's financial health. Companies House provides free access to accounts and filing history. A weak balance sheet or late accounts is a red flag.
What to Do if Retention is Withheld Unfairly
If a main contractor withholds your retention beyond the contractually agreed release date without justification, you have options:
- Issue a formal payment application and follow the payment notice procedure in your contract
- If no valid pay-less notice is issued, the retention becomes a debt you can pursue
- Adjudication is available to you as a statutory right and can produce a decision within 28 days
- For smaller amounts, the county court small claims track is a cost-effective option
The key is to act promptly. Delayed claims are harder to pursue and create the impression that you've accepted the situation.
Review your JCT subcontract before you sign — in minutes, not days.
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