How does retention work?
A retention payment is an amount of money due to a sub-contractor (usually between 1.5% and 5% of the total bill) that's held back until a job is complete. It acts as a kind of security deposit, ensuring that the project works will be fully completed, and any defects ('snagging issues') are remedied.
In most cases, a proportion of the retention money is paid on completion of the job. There's then an agreed 'defects liability period', during which the sub-contractor is obliged to rectify any snagging issues. At the end of this period, if all those issues have been dealt with, the rest of the retention should be paid.
That's the theory. In practice, retention monies are often not paid on time. In some cases, they're never paid.
The issue of payment retentions is not a minor one. In 2017, a government review of the practice of cash retention under construction contracts estimated that the total amount owed under retentions in just one year was between £3.2 billion and £5.9 billion. Retention liabilities usually flow down the supply chain from the main contractor, so they can affect a number of different companies working on one particular project.
Do you get paid all the retention amounts you're owed? Do you often have to wait a long time to receive payment? If you've answered 'yes' to either of those questions, you're not alone. It's not uncommon for main contractors to withhold retention payments to protect their own cash flow – but at the expense of yours.
If you're struggling to get paid any retentions you're owed, here are few simple steps you can take...
Check your contract
Your initial works contract should specify the due dates for payment, including the final date for payment of any retentions. If not, you should refer to the Scheme for Construction Contracts, which specifies standard payment terms.
What if the project has been completed with no defects?
If the works have been completed and signed off, but the retention payment hasn't been released, you should first contact your customer to find out why that's the case. If they can't give you a satisfactory explanation for withholding the retention payment, you should send them formal written notice that the payment is due and set a deadline. They must reply to you with a withholding notice, explaining why they're not paying the due amount.
What if there are snagging issues?
The first thing to do is to find out exactly what the problem is and whether there's just one issue or more than one. If you agree with their assessment, you should obviously get things rectified as soon as possible and obtain a formal sign-off on the work. You then have a strong case to insist that the retention amount is settled promptly.
Don't delay!
Unfortunately, many contractors don't put a high priority on chasing overdue retention payments. As with any overdue amount owed to you, it's important to have robust credit control procedures in place so that the debt isn't allowed to slip through the net. You may have finished the work and moved on, but that doesn't lessen the effect on your cash flow.
Acting sooner rather than later should also put you at the front of the queue. Remember, you're unlikely to be the only supplier chasing a retention payment, particularly if the project was a major one.
Still struggling? Get professional help
If a retention debt remains outstanding despite your best efforts, it may be time to bring in the professionals. At Redwood Collections, we're highly experienced in dealing with collection of overdue retention payments.
Having worked with many construction companies over the years, we understand the complexities and commercial sensitivities involved.
Operating with tact and integrity, we'll ensure that we do everything we can to recover the debt, without compromising your reputation or customer relationships. Work with us and we can help you Grow Stronger.
Email us at info@redwoodcollections.com.
