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.