Member Article

How to get your retentions back - Without any fuss

Getting your retentions payments can sometimes mean the difference between profit and failure. Use this checklist to make sure you’re doing all you can to get them back quickly.

Completing any building project is a moment to celebrate. But if there are retentions on the contract, it’s wise to hang on with cracking open the champagne until you get the full payment. Retentions allow the client to withhold a share of the contract price – typically 3-5% - until the contractor, and each subcontractor, has finished the job to an agreed level.

However, retentions are a major bone of contention in the construction industry. Construction lawyers say it’s extremely common for companies to hang on to retention payments for months due to disputes over what has been done, or what was agreed in the first place. Often, they simply do not pay at all. And if your profit margin is 5% and the retention is 5%, then that adds up to trouble.

How can your company make sure it gets its retentions paid quickly?

Retentions are always complex - but there are steps you can take to make the situation easier and to help you fight your corner in a legal dispute if a retention is withheld.

Use this handy checklist to make sure your position on retentions is sound:

1) What are the conditions of the retention?

Keep detailed information as each retention is negotiated, so you can be sure you are meeting all the criteria. Don’t forget - if you use subcontractors, you will be including retentions on your contracts with them and those need to be tracked too.

2) What retentions are there on this contract?

Retentions are often added or changed as a contract develops, which helps to make them extremely complex. Make sure you keep track of each one separately.

3) How much is the retention for?

Whilst this might be clear from the outset, what might cause it to change and when? For example on a large contract it will typically reduce from 5% to 3% when the contract reaches a certain sum. What is that sum and when is the subsequent partial release, if any, due?

4) What is the status of the project with regard to this retention?

You’ll be well aware of how you are progressing with the project. But how does that compare with what’s required to get your retention back? For instance, is there only snagging outstanding? Have the necessary inspections been made?

5) What is the status of the retention itself?

Ensure that you track when you plan to claim the retention payment, when you actually claim it and when it is finally paid. And remember this applies to the partial release upon practical completion as well as the final account.

Get the record straight

Most of the checklist sounds obvious - but retentions can be extremely complex, particularly over a long and complicated project and it’s easy to lose track.

Paper records work well in their way, but can be bulky and difficult to sort through, particularly if you need to put together effective evidence in a dispute about a withheld retention.

Construction accounting software can be a sound investment for your business, making sure you have instant access to all the information you require. This makes it easy to keep your data regarding retentions up to date. Construction accounting software will enable you to create specific reports for you to get particular retention information you need at the press of a button.

To make retentions work for you, the trick is to be fully in control at all times. And keeping good data makes sure you stay in the driving seat on your journey to an honest profit.

This was posted in Bdaily's Members' News section by Wes Simmons .