Should you hold retention from your subcontractor?

Start from what retention is for, because the answer decides everything else: it is security for performance, the mechanism in full is here, held against the risk that defects appear and their author does not come back. Applied to your subcontractor, the honest question is: is that risk real on this package, and is retention the cheapest way to hold it?

If you hold it, hold it properly

• It exists only if the subcontract says so. Retention is contractual, not customary: a deduction with no written basis is just an underpayment, and on a subcontract, which is an ordinary Act contract, an unagreed deduction from the notified sum needs a pay less notice like any other (section 111).
• The releases run on the SUBCONTRACT’S events: completion of the package, end of its defects period. Tying release to main contract milestones the sub does not control, “when the employer certifies making good”, drifts into conditional-payment territory, the same family the Act attacks in pay-when-paid clauses (section 113), and at minimum it is the drafting a sub’s adjudicator reads least sympathetically.
• The percentages should rhyme with your own: holding 5% down while 3% is held up is not risk transfer, it is margin taken from the person least able to finance it, and subs price serial offenders accordingly.
• Diary both releases the day the package completes. The old title of this page was “the money nobody releases”, because that is the empirical truth of subcontract retention: it strands, not from malice but because no one on your side has any reason to remember it. You know exactly how that feels, from the other end.

The alternatives that often fit better

On small packages the administration costs more than the risk: consider no retention with a right of set-off you actually paper properly (contra-charges done right), a defects holdback on the final payment only, released on a stated date, or, on bigger packages, a retention bond. Each holds the same risk with less stranded money and fewer forgotten triggers.

The symmetry argument, stated plainly

Everything you dislike about retention held on you, the financing cost, the stranded second half, the chasing, is what your subcontractor experiences from you. That is not a moral point so much as a practical one: your credibility complaining upwards about over-retention and stranded releases is strongest when your own downstream practice is clean. Run the standard you want applied to you.

What to do this week

1. List every sum you currently hold from subcontractors, with its contractual basis and its release triggers. Expect surprises; that is the point of the list.

2. Release anything past its trigger, unprompted. It is due anyway, and an unprompted release buys more goodwill per pound than any line item you will write this year.

3. Decide your standard policy, per trade, retention, holdback, or clean set-off, and write it into the next subcontract instead of inheriting the habit again.

Where the information stops

Whether a particular release trigger crosses into an ineffective conditional payment is a wording question with real case law behind it, and if your standard subcontract ties releases to main contract events, that clause deserves a professional read before a subcontractor’s adjudicator gives it one.