Retention payments are typically 5-10% of the contract value held back until later, often causing cash flow headaches. They’re meant to ensure quality, but they can also mean delayed payments and extra hassle with many main contractors dragging their feet on paying out.
We understand these challenges, with over £15m collected to date for the construction industry alone, our track record speaks for itself. As a collections agency, our role is to offer our expertise to ensure that you receive the payments you’re entitled to.
Let’s delve into what retention means in the construction industry and how we can help businesses in this sector navigate this complex arena.
Understanding payment processes in construction
Payment processes can vary depending on the size and complexity of the project. For smaller projects, standard invoice and payment methods are often used. But for larger projects with retention involved, things get a bit more complicated. In these cases, instead of simple invoices, you deal with applications for payment and Pay Less notices. For instance, in standard Joint Contracts Tribunal (JCT) contracts, the contractor applies for payment and the main contractor either accepts and pays or issues a Pay Less notice, detailing any defects or reasons for withholding funds.
Why do we have retention in construction?
This leads us to the concept of retention in construction. Retention is a portion of the contract value, typically 5% to 10%, withheld by the main contractor to ensure the job is completed to the required standard. This acts as a security measure, ensuring any defects or issues are addressed before the final payment is released. While this system protects main contractors and customers, it can create cash flow issues for contractors and subcontractors who rely on timely payments to manage their expenses and keep their projects rolling.
How long can retention money be held for?
Retention money can be held until the construction project is completed without any issues and the agreed period for fixing defects has passed. The specific duration for holding retention funds varies based on the terms outlined in the contract. Depending on your agreement, this can mean six months or even up to two years.
Dealing with Pay Less notices
A common hurdle contractors face is the Pay Less notice. A Pay Less notice allows a customer or main contractor to withhold part of the payment if there are defects or delays in the work. The notice must include the exact sum being withheld and the reason(s) why. It must be issued within a certain time period, usually defined in the contract. If the main contractor fails to issue the notice on time, they cannot withhold the money, and the contractor must be paid in full. Understanding this can help you ensure you receive your money without unnecessary delays.
How to address non-payment
If you face non-payment of retention, it’s crucial to know how to protect your rights. First, check your contract to identify the exact due dates for payment and any penalties for late payment. Confirm there are no outstanding snagging issues and that the work has been officially signed off. Then, notify the other party in writing that the payment is due and set a clear deadline for receipt of what you’re owed.
The power of "Smash and Grab" adjudication
When conventional methods fail, "smash and grab" adjudication can be a powerful tool. This method enforces payment quickly based on strict payment notice rules in construction contracts. If the other party does not respond with a Pay Less notice within the required time, the contractor can demand full payment without delay. This process ensures contractors get paid quickly, and any disputes can be resolved later, following a "pay now, argue later" approach. Understanding this can help you leverage your contract terms to ensure you get paid.
Why good documentation matters
It’s crucial to pre-empt any problems by getting your paperwork in order. Ensure that your invoices clearly state your payment terms. For example, specify that all queries must be raised within 14 days of receipt and that all undisputed invoices overdue by 14 days may be subject to legal proceedings. This proactive approach can help reduce payment delays and disputes, leaving no room for confusion.
How we can help
Construction debt is our bread and butter. Our debt collection experts negotiate the release of retention funds and are well-versed in the legal rules and industry standards to advocate for you. We mediate disputes, offer legal support and handle all the paperwork to ensure you get paid.
If your money is being withheld unfairly, we can help. We assist contractors and subcontractors in recovering owed funds and resolving disputes to secure your rightful payment.
Contact us today, our debt collection experts are here to answer your questions and help your business – Grow Stronger
