It is quite extraordinary to think that despite the apparently universal disdain for it, the antiquated and out-moded practice of deduction of retention is still prevalent and endorsed by industry standard forms of contract. In other words part of the value of the output of almost every company in the industry is deducted at source and held by another business, usually one with a vested interest.
Retention does not provide security for performance or a meaningful remedy for defects rectification; it is expensive to administer, a contributor to many disputes and an opportunity to resist paying the full contract price in some instances. In short, it is not fit for purpose.
The intention is that retention should be held in trust on behalf of the company who has earned it and to whom it belongs until all contractual obligations, including the expiry of the defects rectification period has been achieved. This is referred to in contracts as a ‘fiduciary interest’. Any amendments to this ‘trust’ status of the retention deduction in contracts offered for signature should be rejected.
Many standard contracts contain a provision for the retention fund to be set aside in a separate bank account, however for some unknown reason this is a provision that contracting parties rarely request to have implemented. As a step to protect your money this facility should be requested as a bare minimum.
The JCT suite of contracts provides a model form of retention bond which makes the deduction of interim monies superfluous meaning that payment is made in full or gross as it falls due.
In the best supply chain relationships retention does not feature; best value, repeat business and track record being sufficient incentives for the contracting parties to perform their obligations without the need for monies to be withheld at the point of payment.
What other industry would tolerate the concept of retention. There are alternatives that you can propose and failing that there are measures that you can implement to protect your money – so do it!
If you would like advice on how to quickly recover retention outstanding to you C-Link’s Partner, Commercial Risk Management, can provide you with support, just visit their Partner page to get in touch.
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About Paul Heming
Paul was a Quantity Surveyor who gained 10 years experience of managing £200 million worth of flagship UK projects, including 20 Fenchurch Street and Battersea Power Station. In 2015, Paul founded C-Link with the intention of sharing his expertise of managing major projects with the SME market.