Retention

Retention is money withheld from each progress payment (commonly 10% of each claim until 5% of the contract sum is held) as security for performance, released half at practical completion and half after the defects liability period.

Retention is your earned margin sitting in someone else's account. Unless a statutory or contractual trust applies, it is usually just an unsecured debt owed to you. If the builder becomes insolvent, retained money ranks with the other unsecured creditors.

The release drafting matters more than the percentage: release tied to the head contract, or to a defects period that restarts, holds the money far longer than the numbers suggest.

Why it matters to subbies

Across the contracts analysed for the Index, 5% of the contract sum is the market-median cap. Know the real release triggers in your contract, and consider whether a bank guarantee swap keeps the cash working in your business instead.

General information for Australian subcontractors, not legal advice. Contract drafting and state legislation vary and change; your document and your state's Act govern. Written by Mat Kennedy at The Construction Contracts Co.