Construction Retention Payment Disputes: What Contractors Should Check
Construction retention payments can become a serious issue when work has been completed but part of the money remains withheld.
For contractors, subcontractors and construction professionals, the main question is often straightforward: when should the retention be released, and what can you do if the other party refuses to pay?
The answer depends on the contract, the work completed, the reason given for withholding the money and the evidence available.
Before sending another chasing email or starting formal action, it helps to understand where you stand.
What is a construction retention?
A retention is an amount withheld from payments due under a construction contract.
It is commonly used to provide some financial protection if defects need correcting or contractual obligations remain outstanding.
The contract should normally explain:
- How much can be retained
- When retention can be deducted
- When part of the retention should be released
- When the remaining balance becomes due
- What conditions must be met before payment
- Whether notices or other procedures apply
Problems often arise when the work is complete but the retention remains unpaid.
At that point, the issue may become more than an administrative payment delay. It may become a construction contract dispute.
Why are construction retentions receiving more attention?
Changes introduced in 2025 increased transparency around retention practices for qualifying businesses.
The Reporting on Payment Practices and Performance (Amendment) Regulations 2025 came into force on 1 March 2025. They introduced additional reporting requirements concerning retention clauses in qualifying construction contracts.
The requirements apply to relevant financial years beginning on or after 1 April 2025. Qualifying businesses must report certain information about their retention policies, practices and payment performance.
There are also further changes being considered.
In March 2026, the Government confirmed proposals to prohibit the withholding of retention payments under construction contracts. Further legislation and implementation details determine how and when those proposals apply, so businesses should not assume that all existing retention clauses have already become invalid.
For contractors dealing with money that is already being withheld, the immediate question remains the contract and the payment position.
When can a retention payment become a dispute?
A retention dispute may arise when:
- The contractual release date has passed
- Practical completion has been achieved but payment is still withheld
- A defects period has ended
- The other party alleges defects without explaining them properly
- Retention is being withheld because of a wider project dispute
- The amount withheld does not appear to match the contract
- Payment applications or notices are disputed
- The parties disagree about whether contractual conditions have been satisfied
- The contractor or subcontractor has repeatedly chased payment without progress
The existence of a retention clause does not automatically answer whether the money can continue to be withheld.
The exact wording of the contract matters.
The contract should be your starting point
If you are trying to recover a construction retention, start with the agreement rather than the latest email from the other side.
Check the provisions dealing with:
- Retention percentages
- Payment dates
- Practical completion
- Defects or rectification periods
- Final accounts
- Certificates
- Payment applications
- Payment notices
- Pay less notices
- Set-off
- Dispute resolution
You also need to check whether the contract incorporates standard terms such as JCT, NEC or another form and whether those terms have been amended.
A small amendment can affect when payment becomes due or what must happen before the retention is released.
What if defects are being used to withhold the retention?
This is a common source of disagreement.
The other party may argue that defects remain outstanding and that the retention should therefore not be released.
That does not automatically mean the withholding is correct.
You may need to establish:
- What defects are actually alleged
- Whether they are your contractual responsibility
- Whether you have been given an opportunity to rectify them
- Whether the work has already been corrected
- Whether the amount withheld is justified
- What the contract says about release of retention
- Whether the required payment procedure has been followed
This is where the facts, contract and evidence need to be considered together.
Photos, inspection records, snagging lists, certificates, emails and project correspondence may all become relevant.What if the retention is simply overdue?
If the contractual requirements for release appear to have been satisfied and payment has still not been made, you may need to consider what action is commercially sensible.
Possible routes can include:
- Further negotiation
- A formal payment demand
- A contractual notice
- Construction adjudication
- Court proceedings
- Another dispute resolution process provided by the contract
The right route depends on the dispute.
For example, adjudication can be useful in some construction payment disputes, but it should not be treated as the automatic answer to every unpaid retention.
The value of the retention, contractual position, available evidence and likely cost of pursuing it should all be considered.
Can you recover retention through adjudication?
Construction adjudication may be available for certain disputes arising under construction contracts.
It can be used for payment disputes in appropriate circumstances, including some disputes concerning retention.
However, the important question is not simply whether you can adjudicate.
You should first consider whether adjudication is the right commercial step for the dispute.
That may depend on:
- The value of the money being withheld
- The construction contract
- The reason payment has been refused
- The strength of the evidence
- Any payment or contractual notices
- Whether there are wider delay or defect allegations
- The likely cost and practical benefit of proceeding
What evidence should you gather?
Before seeking advice or starting formal action, gather the key documents relating to the retention.
These may include:
- The signed construction contract
- Any amendments to standard contract terms
- Payment applications
- Payment notices
- Pay less notices
- Invoices
- Practical completion documents
- Certificates
- Defects or snagging records
- Emails about release of retention
- Evidence of completed remedial work
- Final account correspondence
- Records of previous payment
- Letters or messages explaining why payment is being withheld
A clear timeline can also help.
Record when the work was completed, when any defects period ended, when payment should have been made and what happened when you chased it.What if there is a wider construction dispute?
Retention disputes do not always stay limited to the retained amount.
The other party may respond by raising issues about:
- Defects
- Delay
- Variations
- Extensions of time
- Valuation
- Set-off
- Termination
- Other unpaid amounts
At that point, you may be dealing with a wider construction dispute rather than a simple unpaid retention.
Sending another demand without understanding those issues can make the position harder to manage.
Before taking the next step, it can help to understand the wider contractual position.
Is the retention worth pursuing?
This is an important question.
Legal action should have a commercial reason behind it.
Consider:
- How much is being withheld
- Why it is being withheld
- How strong the contractual position appears
- What evidence is available
- Whether there are wider claims or counterclaims
- What recovery route may be available
- What taking the next step may cost
Sometimes the right decision is to pursue the money.
Sometimes further negotiation makes more sense.
Sometimes the cost and risk mean another approach should be considered.
The aim is to know where you stand before spending money on the wrong action.How My Commercial Lawyers can help with a retention dispute
My Commercial Lawyers provides barrister-led construction dispute support for contractors, subcontractors, developers, architects, consultants and construction professionals.
The team can review the facts, contract and evidence to help clarify the dispute and possible next steps.
Depending on the matter, the options may include negotiation, a formal response, adjudication, litigation or another appropriate route.
My Commercial Lawyers has experience with construction payment and contract matters, including terminating JCT contracts for non-payment and recovering unpaid fees for architects and construction professionals.
Litigation conduct is also available where suitable.
What happens next?
If a construction retention remains unpaid and you need to know what your options are:
- Complete the website form.
- Download Trello and join your matter board.
- Share the issue, contract and key facts.
- The team reviews the facts, contract and evidence.
- Suitability is checked.
- If suitable, the next step, fixed instruction fee, client care letter and invoice are arranged before work begins.
My Commercial Lawyers works on a fixed instruction fee basis. The scope and fee for each instruction are confirmed before that instruction begins.
You can find out whether your matter fits before committing to the next step.
Check your construction dispute options
If retention money is being withheld and you are unsure whether the contract allows it, get clear on your position before taking further action.
Share the issue, contract and key facts so the team can review whether this is something they can help with.