The past two years have forced industries to move away from traditional, and in some cases, more archaic ways of working.
However, in the construction sector, one practice often thought of as ‘outdated’ is retentions. As we seem to be stuck with them for now, Angus McAlpine, Head of Partnerships at Payapps, offers straightforward advice for keeping the process efficient and simple.
As defined by Helix Law¹ retentions are ‘an amount of money withheld from a contractor until a job is complete, normally it
is 5-10% of the contract’s sum.’
It may help to think of a retention as a pot of money from which an employer can deduct. These deductions can happen for several reasons, ranging from delays to defects or even a tool to ensure that the contractor completes the project on time.
The true extent to how widespread retentions are used is highlighted in the Government’s ‘Retention Payments in the
Construction Industry’² consultation, where findings showed that the value of retentions in a given year ranges from £3.2bn to £5.9bn.
The current retention process in construction
Currently, the retention system sees half the money retained released on completion of the project, with the other half not being paid until the defects liability period passes.
As defined by law firm, Hugh James³, a defects liability period follows the practical completion of a project. During this time, ‘the contractor remains liable under the building contract for dealing with any defects or issues that arise.’ Typically, this runs six to 12 months from the completion date.
Upon conclusion of the pre-agreed time for the liability period, an inspection ensures all problems are rectifi ed. Once this time has passed and an inspection happens, the remaining balance will be paid. (The process is covered in more detail in the Payapps Retention eGuide at https://uk.payapps.com/blog/retentioneguide-managing-retention-how-to-get-it-back)
As construction projects can become lengthy and complicated tasks, the length of time between starting a project and the end of the defects liability period can be considerable. As such, all parties involved must defi ne robust procedures, guaranteeing the fee paid does not alter.
With the sheer complexity of the manual processes required to keep on top of retentions, it can quickly become a struggle to track what you are owed, and the dates payment is due.
So, is it time we moved past retentions?