When it comes to the construction industry, many factors contribute to the success of a project. From planning and design to materials and labour, each aspect plays a crucial role in the outcome. However, one often overlooked aspect of construction is retention. In this article, we will explore what retention is in construction, why it matters, and how it can impact the overall success of a project.
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What is Retention in Construction?
Retention in construction refers to the practice of withholding a portion of the contract price until the project is completed to the satisfaction of the client. This withheld amount is known as retention money and is typically a percentage of the total contract price, ranging from 3-10%. The purpose of retention is to ensure that the contractor fulfils all of their obligations and completes the project to the agreed-upon standards.
How does Retention Work?
Retention is typically held by the client or the main contractor and is released to the contractor upon completion of the project. However, in some cases, retention may also be held by the subcontractors, who will then release it to the main contractor upon completion of their portion of the project. The retention money is usually held in a separate account and is not released until the project is completed and all defects have been rectified.
Illustrative Example of Retention in Construction
Sarah hires a construction company, Tom Builders, to build an office building. As part of their contract, Sarah and Tom Builders agree that 5% of the contract price will be held as retention money until the project is completed to Sarah’s satisfaction.
During the construction process, Sarah closely monitors the progress and identifies some minor defects. Once Tom Builders fixes these defects to Sarah’s satisfaction, the project is considered finished, and Sarah releases the retention money.
In this example, retention allowed Sarah to ensure that Tom Builders fulfilled their obligations and delivered a quality project. It also protected Sarah by withholding funds until all work was completed to her satisfaction.
Why Retention Matters in Construction
Encourages Quality Work
One of the main reasons why retention is important in construction is that it encourages contractors to deliver quality work. By withholding a portion of the contract price, clients have leverage to ensure that the contractor meets all of their obligations and delivers a high-quality project. This can help prevent contractors from cutting corners or using subpar materials to save costs.
Protects Clients from Defects
Retention also serves as a form of protection for clients against any defects or issues that may arise after the project is completed. If any defects are found during the retention period, the contractor is responsible for fixing them at their own cost. This ensures that the client does not have to bear any additional expenses for repairs or maintenance.
Motivates Contractors to Complete Projects on Time
Retention can also serve as a motivator for contractors to complete projects on time. Since the retention money is only released upon completion of the project, contractors have an incentive to finish the project within the agreed-upon timeline. This can help prevent delays and ensure that the project is completed within the expected timeframe.
Encourages Collaboration and Communication
Retention can also encourage collaboration and communication between the client and the contractor. By withholding a portion of the contract price, clients have a reason to stay in touch with the contractor and monitor the progress of the project. This can help prevent any misunderstandings or miscommunications and ensure that the project is completed to the client’s satisfaction.
How Retention Can Impact the Success of a Construction Project
Improved Quality of Work
Retention can have a direct impact on the quality of work delivered by the contractor. By withholding a portion of the contract price, clients have a way to ensure that the contractor meets all of their obligations and delivers a high-quality project. This can help prevent any issues or defects and ensure that the project is completed to the expected standards.
Timely Completion of Projects
Retention can also have a positive impact on the timeline of a construction project. Since the retention money is only released upon completion of the project, contractors have an incentive to finish the project within the agreed-upon timeframe. This can help prevent any delays and ensure that the project is completed on time.
Better Communication and Collaboration
Retention can also improve communication and collaboration between the client and the contractor. By withholding a portion of the contract price, clients have a reason to stay in touch with the contractor and monitor the progress of the project. This can help prevent any misunderstandings or miscommunications and ensure that the project is completed to the client’s satisfaction.
Increased Client Satisfaction
Ultimately, retention can lead to increased client satisfaction. By ensuring that the project is completed to the expected standards and within the agreed-upon timeframe, clients are more likely to be satisfied with the result. This can lead to positive reviews and recommendations, which can benefit the contractor in the long run.
How to Recover Construction Retention
Recovering construction retention can sometimes be a challenging process, but by understanding the steps involved, you can navigate the procedure effectively. Here are the key steps to recover construction retention:
- Review the Contract Terms: The first step in recovering construction retention is to carefully review the contract terms related to retention. Understand the specific conditions under which the retention money should be released and the timeframe for its release.
- Confirm Completion of the Project: Ensure that the construction project has been completed according to the agreed-upon standards and specifications. Verify that all defects have been rectified and the project is deemed finished.
- Request Release of Retention: Submit a formal request to the party holding the retention money, whether it is the client, main contractor, or subcontractors, for the release of the retention funds. Provide all necessary documentation and evidence to support your claim for the release.
- Follow Up on Payments: Keep track of the progress of your request for the release of retention funds. Follow up with the relevant parties to ensure that the process is moving forward and address any potential delays or issues promptly.
- Maintain Communication: Maintain open communication with the parties involved in the retention recovery process. Clear and consistent communication can help facilitate the resolution of any disputes and ensure a smoother process.
- Document Everything: Ensure that all communication, documentation, and agreements related to the retention recovery process are properly recorded and maintained. This documentation can serve as crucial evidence in case of any disputes or legal proceedings.
Are you facing challenges with construction retention or in need of legal advice for your construction projects? Our expert lawyers are here to assist you. Please call our expert construction lawyers today for a Free Consultation on 0207 459 4037.
Prohibited Retention Clauses in Construction Contracts
In construction contracts certain retention clauses are deemed prohibited or unfair due to their unfavourable impact on the parties involved. All stakeholders must be aware of these prohibited clauses to ensure fair and transparent contractual agreements. Some examples of prohibited retention clauses include:
- Unreasonable Retention Amounts: Contract clauses that stipulate excessively high retention amounts, far beyond industry standards, may be considered prohibited. Such clauses can unfairly burden contractors and subcontractors, affecting their cash flow and financial stability.
- Unjustified Retention Periods: Retention clauses that impose unreasonably long retention periods without valid justification may be deemed prohibited. Prolonged retention periods can hinder contractors from receiving timely payment for their work and delay the resolution of disputes.
- Non-Release of Retention Without Cause: Contract clauses that prevent the release of retention funds without valid cause or justification may be considered prohibited. Contractors and subcontractors should be entitled to the release of retention upon completion of their work in accordance with the contract terms.
- Mixing Retention Funds with Operational Funds: Clauses that allow retention funds to be commingled with operational funds or other project funds are generally prohibited. Mixing retention funds can create ambiguity and difficulty in tracking the funds allocated for specific purposes.
- Non-Disclosure of Retention Terms: Contract clauses that lack transparency and fail to clearly define the terms and conditions related to retention may be prohibited. All parties should have a clear understanding of the retention terms, including the percentage of retention, duration of the retention period, and conditions for release.
- Unilateral Retention Decisions: Prohibited retention clauses may include provisions that allow one party to unilaterally decide on the release or withholding of retention funds without mutual agreement or proper justification. Such clauses can lead to disputes and unfair treatment of the other party.
Best Practices for Retention in Construction
Clearly Define Retention Terms in the Contract
One of the best practices for retention in construction is to clearly define the terms in the contract. This includes the percentage of retention, the duration of the retention period, and the conditions for the release of the retention money. This will help prevent any misunderstandings or disputes between the client and the contractor.
Use a Separate Account for Retention Money
It is important to use a separate account for retention money to ensure that it is not mixed with other funds. This will make it easier to track and release the retention money when the project is completed.
Regularly Monitor the Progress of the Project
Clients should regularly monitor the progress of the project to ensure that it is on track and meets their expectations. This can help prevent any issues or delays and ensure that the project is completed to the expected standards.
Release Retention Money Promptly
Once the project is completed and all defects have been rectified, the retention money should be released promptly. This will help maintain a good relationship between the client and the contractor and ensure that the project is completed to the satisfaction of both parties.
Winning Approach to Construction Dispute Resolution
Retention is an important aspect of construction that is often overlooked. By withholding a portion of the contract price, clients have leverage to ensure that the contractor meets all their obligations and delivers a high-quality project. Retention can also serve as a motivator for contractors to complete projects on time and encourage collaboration and communication between the client and the contractor.
Our lawyers’ extensive industry-specific knowledge and our commitment to justice make us the preferred choice for many businesses in the construction industry.
Our construction dispute lawyers are recognised among the best lawyers in England & Wales, and have regularly been asked and featured to write authoritative articles in the Financial Times, the Law Society and LexisNexis and have been quoted in City AM, the New Law Journal, Law Society Gazette and Litigation Futures.
Our unique approach to construction disputes means that we will:
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- Fixed fees & “no win no fee” arrangements are available
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Our construction dispute lawyers offer regulated, independent & confidential legal advice and are also dedicated members of the Professional Negligence Lawyers Association, the London Solicitors’ Litigation Association, the Association of Cost Lawyers, the Insolvency Lawyers Association and the Commercial Litigation Association.
Mediation in Construction Retention Disputes
Alternative dispute resolution, where suitable, provides many advantages for parties involved in construction disputes. Our construction disputes lawyers are strong advocates for mediation which can often lead to favourable and early settlements.
Several of our lawyers are trained mediators and expert negotiators who are registered members of the Chartered Institute of Arbitrators (CIArb) and the International Mediation Institute. Our expertise in mediation gives our construction lawyers a significant and unique advantage when navigating settlement discussions on your behalf.
Fixed Fee & Flexible Funding Options
We provide flexible funding options including fixed fees and ‘no win no fee’ arrangements for your construction dispute.
Are you facing challenges with construction retention or in need of legal advice for your construction projects? Our expert construction lawyers are here to assist you. Contact us today for a free consultation and let us guide you through the complexities of construction contracts and retention recovery. Call us now at 0207 459 4037 to speak with our experienced team and find the solutions you need.
