How much retention can they hold?

Somebody deducts five per cent. Somebody else deducts three. A main contractor holds ten from a small groundworker and calls it standard. None of those is a rule, because there is no legal maximum on retention and no legal minimum either.

The percentage comes from one place: the contract particulars, on the page most people sign without reading. Which means the honest answer to “how much can they hold” is always “whatever you agreed, so go and look”.

What you will actually meet

On the standard forms used for the kind of job this is written for, five per cent during the works, dropping to two and a half after practical completion, is the position you will meet most often. Three per cent turns up as well, particularly on larger contracts where the sums involved make the financing cost significant.

Nil retention also exists, and it is not exotic. On a short job with a well known client, or where you are giving a bond or a parent company guarantee instead, there may be nothing held at all.

What the percentage costs you

Take a job of three hundred thousand pounds and run the difference:

• At three per cent: nine thousand held, four and a half thousand still out a year after you finish.
• At five per cent: fifteen thousand held, seven and a half thousand still out a year after you finish.
• At ten per cent: thirty thousand held, fifteen thousand still out a year after you finish.

Read that as two separate gaps, because they bite at different times. At the peak of the job, three per cent against ten is twenty one thousand pounds of your working capital, financed by you. A year after you have finished, it is still ten and a half thousand. That is why the percentage is worth an argument at tender stage and worth nothing at all as an argument afterwards.

What you should actually do

1. Find the figure before you price, not after. Retention is a financing cost. If you are carrying five per cent for eighteen months and have not priced it, you have given a discount without noticing.

2. Check the rate on the certificate against the rate in the contract. Every month, in one line. This is the single most common error in the whole subject and it is almost always a spreadsheet that was set up once and never revisited. It runs the wrong way about as often as it runs the right way, so it is worth checking even when the number looks fine.

3. Look for the drop after practical completion. A contract at five per cent that halves to two and a half only halves if somebody changes it. See the piece on the first release for what that looks like on the certificate.

4. Do not let a percentage do the work of a deduction. If the client wants to hold back more than the contract percentage, that is not retention however it is labelled. It is a deduction from the sum notified as due, and it needs a pay less notice giving the amount and the basis on which it is worked out, under section 111 of the Housing Grants, Construction and Regeneration Act 1996.

The rate you hold from your subcontractor

You can hold retention down the chain, and most subcontracts allow it. Two things worth thinking about before you set the figure.

Holding more from your subcontractor than is held from you is legal under most subcontracts and it is working capital you have not earned. It is also the fastest way to lose a good groundworker to somebody who does not do it, and on jobs of this size the groundworker is harder to replace than the client.

Holding the same percentage that is held from you is the position most people can defend, and it keeps the arithmetic simple when the releases come round.

The question that settles it

If you cannot say what your retention percentage is without opening a file, that is the answer to whether you have priced it. It is one of four numbers to take off your own contract before the first valuation, along with the release dates and the ceiling.