For Contractors
The UK Retention Deposit Scheme is an independent scheme for the protection of retentions under construction contracts.
We provide segregated bank accounts for construction retentions under standard-form and bespoke construction contracts in England and Wales.
For Contractors
Securing retentions against the Employer's inability to pay and ensuring their prompt release is of paramount concern to contractors undertaking construction works in the UK.
How does the retention affect the Contractor?
Find out more about What is a Construction Retention?
The underlying purpose of a construction retention from an Employer's perspective is to ensure the completion and quality of the construction project. From a Contractor's perspective, however, the retention at 3-5% of a project's gross value can constitute a significant proportion of the profit likely to be made on the construction contract.
While many Contractors will receive their retention payments (eventually), there are significant risks to a Contractor in allowing the Employer to withhold retention and manage it themselves.
What are the key risks to a Contractor in the withholding of retention payments?
In addition to the Contractor having to carry the risk of the Employer's solvency beyond completion of the works (perhaps one of the more obvious risks), there are further risks to the Contractor that might be less apparent on first review:
Cash Flow
The withholding of retention payments of 3-5% on a monthly basis can weigh on a Contractor's cash flow, but most Contractors assume this and plan their projects, overheads and profit accordingly. On a monthly basis, therefore, the withholding of the retention often doesn't cause that much harm.
Following practical completion, however, Contractors bank on the swift release of retentions, not least because they are required to release their own sub-contractors' retentions at the same time. If the Employer delays in paying (or is unable to pay) the retention, that is not an excuse for the Contractor not to make its own payment of retentions to its sub-contractors.
For SME Contractors, a delay in the release of retention can hinder the ability to cover ongoing operational expenses, pay suppliers and sub-contractors or even manage payroll, potentially jeopardising the overall financial health of the Contractor and all of its downstream supply chain.
Tension & Disputes
The first release of retention is generally timed to coincide with practical completion (or the equivalent under the contract) of the project. This is the point in time at which the parties will usually be discussing any lingering defects or snagging - the Contractor will be hoping for a prompt release of its retention (potentially in order to cash flow the snagging remediation) and the Employer will be planning to withhold it until they are satisfied with the results.
This sort of tension can erode trust and cooperation, potentially leading to disputes and a strained working relationship, which can affect the project and all future projects. Disputes over retention payments can lead to costly and time-consuming adjudication and dispute resolution.
Contractors may need to invest significant resources in legal fees and administrative processes to secure the release of the withheld funds, diverting attention and resources away from productive activities.
Are there any benefits to the Contractor for the construction retention being deposited with a third party?
Absolutely. Where the parties to a construction contract elect to use a Retention Deposit Account, the retention is released (in accordance with the Retention Deposit Scheme Rules) automatically to the Contractor on production of the relevant certificate under the construction contract.
Responsibility for the issuing of certificates in construction projects is generally conferred on third parties (contract administrators, quantity surveyors, engineers etc), who are under a duty to act impartially.
This means that once the relevant completion event has been certified, the Contractor will have a relevant certificate to demonstrate the same - the Contractor then simply uploads the certificate to the Retention Deposit Scheme and we will release the appropriate amount of retention in accordance with that certificate.
Generally-speaking, this happens within 2 business days, so the Contractor can plan its cash flow and expenditure accordingly.
What does a Contractor need to do to open a Retention Deposit Account?
Opening a Retention Deposit Account is both straightforward and quick. Find out more about How It Works, or log in to your account to open a new Retention Deposit Account.
Where can a Contractor find more information on Construction Retention Deposit Accounts?
We have lots of resources available to Employers who would like to find out more about Retention Deposit Accounts:
