Else’s team of specialist construction solicitors answer the question “How do I get my retention money back?”.
Sub-contractors: are you doing enough to make sure you get your retention paid back in construction contracts?
As a subcontractor in the construction or engineering industry, you’ll be familiar with the concept of retention – the proportion of money that the client holds back, in case they need to use it as a lever. This ‘lever’ is used to persuade the main contractor to correct any defects that might become apparent after the contract has been signed off.
Of course, as a sub-contractor you also have retention deducted from payments the main contractor makes to you. A typical figure is as much as 5%.
Do you get back all the retention payments that are deducted on the contracts you undertake? If not, you are far from alone. The majority of sub-contractors don’t make it a priority.
Smart Sub-Contractors Make Sure They Get It Back
However, a smaller percentage of smarter sub-contractors make sure they do everything get all the retention money back. It means their profit margins are much healthier than average.
How do they do it? Quite simply, with a bit of cost-effective professional help from Else’s construction solicitors. But before we talk about that, let’s clarify a few things about how retention is supposed to work, what your legal rights are, and how many sub-contractors are still missing out (or in some cases being exploited).
How Retentions Ought To Work
Various terms are used in contracts to describe the competition of sub-contracted works. A common one is ‘practical completion’. At this stage, a certain amount of retention should be paid back to the sub-contractor. This figure is known as the first moiety of retention.
After this, there is a set period of time, typically 12 months, usually known as the ‘defects liability period’. This is like a warranty, during which the contractor, and by extension the sub-contractor, is obliged to rectify any defects.
The usual practice is for the works to be inspected at the end of the defects liability period, unless there is an urgent need for more immediate rectification. At this point, a schedule of defects is drawn up.
When the contractor and any relevant sub-contractors have done their bit, the works are inspected again. If everything is to satisfaction, the client issues a document called ‘certificate of making good defects’.
At this stage, the second moiety of retention is normally due to be paid out.
How The Construction Act Has Changed Things
Before the Construction Act 2011 came into force, as a sub-contractor it was possible for the paying back of your retention to be linked to something defined in the main contract.
In other words, you might not get your money back because of an issue between the client and the main contractor that was nothing to do with you.
The current Construction Act states that the terms of release of retention back to a sub-contractor must be linked to an event in your sub-contract. Therefore any triggers for payment, such as the end of the defects liability period or other predetermined dates, must be specified in the sub-contract you enter into.
Loopholes And Other Unfair Tricks
On the face of it, that sounds like better protection for you as a sub-contractor. However, since the Act become law, contractors have been busy finding other ways to avoid having to pay back retentions to sub-contractors. A common one is the setting of increasingly longer timescales for the point at which the retention should be released.
That is unfair on you. If you have completed your work in a satisfactory way and corrected any defects that might have occurred, then you should be paid the money that is rightfully yours.
If contractors are holding onto part of your retention, then that can represent a significant proportion of your profits. It is no better than late paying an invoice: all the time you are not being paid back, the contractor is using your money to help bankroll their business.
Sometimes this can be because the contractor is badly organised and doesn’t get around to paying back the sub-contractors. However, often it’s not an accident. There are even cases in which contractors have made the absorption of sub-contractors’ retentions into their own profits part of their usual operating procedure.
The Mistake Most Sub-Contractors Are Still Making
Still, despite all this, it is a fact that most sub-contractors don’t put a high priority on collection of retention money. How high a priority do you make it yourself?
It is easy to see how this happens. Most of the time, you are looking at the jobs you are working on at the moment, and making sure you maintain cash-flow in the here and now. The issue of a small percentage of a contract from last year becomes less important as time goes on.
However, these small percentages can add up to many thousands of pounds.
How we can help
There are ways you can improve your processes and the wording of your terms, and ensuring you stay on top of the dates when return of retention is due. At Else, we have a team of expert construction solicitors who have more than 20 years experience in dealing with the sorts of issues you face. Have you considered the following points recently?
- When were your terms and conditions last updated? Do they take into account your rights under current laws?
- Could you do with expert help in negotiating an important contract, or assistance with debt recovery?
- Would you like to sort out your system for collection of retention, so you are much more likely to get back the money due to you in future?
As your construction solicitors, we’ll be pleased to have an initial conversation to see how we can help you. For more information please contact us on 01283 526200. Alternatively, you can email email@example.com and we will get in touch at a time to suit you.