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EP 15 - Retention

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Retention is a liability mechanism in contracts to ensure the contractor properly completes the works and covers defective work, which may become patent after the completion date for a period of 12 or 24 months.

Unfortunately, retention release can be abused, and it is often viewed as a way for clients to make additional margins off their supply chain as they rely on these unorganised and commercially unstable businesses to be late or forget to collect.

In this video, I talk about how you can manage your outstanding retentions so you collect on time every time.

Transcription

Retention is a touchy subject in the industry, and rightly so - it ties up a sizable chunk of your profit, and collecting retention debts can be a laborious and fruitless task.

Let’s take a look at how to collect your retention money on time, every time.

Retention is money that is too often thrown away by the subcontractor, or they are late recovering it as they don’t have the time or mechanisms to chase their retention monies effectively.

Before we dive in, let's take a look at some things you might not know about retention and how you can minimise your retention risk.

  • Release upon completion of the main contract works: If your works are at the start of the project, request release upon completion of your subcontract works, not the main works. So you avoid waiting an additional 12 months for your retention.
  • Multiple phases: If you have works that come in tranches at the start and the end of the project, propose the contract to be split into two or agree on sectional completion so you’re not waiting a long time to claim your first half retention.
  • Final Account Negotiations: When you’re in the final account negotiations, and the client is seeking a commercial discount - offset the commercial discount by requesting full retention release so you don't have to spend time and money collecting the debt 12-24 months later down the line.
  • Tax: Retention debt isn’t secured and could be subject to adjustment if there are defects in your work. So speak with your account about this so you don’t overpay tax on your outstanding retention debts.

  • Not all works and charges are subject to retention, and here are some examples for you to be aware of:

    • Temporary works, such as scaffolding, aren’t subject to retention as they do not form part of the structural elements of the final build.
    • Loss and expense claims are not subject to retention - so when you agree to your final account, make sure the retention money held on your account is only against your measured works and variations and not on your loss and expense claim.
    • Labour-only contracts shouldn’t attract retention, so if you’re offering a labour-only contract with small tools and consumables, make sure your contract doesn’t have a retention clause.

So now we understand retention a bit better, here’s your 5-step guide to collecting those retention debts:

STEP 1

On completion of the project, log the details for retention release within your tracker and schedule an internal reminder of the due dates. On the due date(s), issue the application for the release of retention.

STEP 2

If there is no response from your email and the application is received within 14 days, send by email and post a commercial letter formally requesting the release along with your previous application. Follow this up with a phone call to check they’ve received it.

STEP 3

If there is no response from your letter within 14 days, contact the person by phone, and send an email confirming your discussions.

If you are unable to reach them, send another email recording your phone call attempt and a message regarding the outstanding retention.

STEP 4

If you still don’t get a response and another 7 days have passed, send by email and post a commercial letter to follow up on your previous formal request along with the appropriate backup (such as. emails, letters, applications, payment certs etc.).

STEP 5

If the client is still giving you the silent treatment, and another week has gone by, issue a final email confirming you will be commencing legal proceedings to recover the debt.

Then speak with a legal representative or commence with a legal proceeding such as a CCJ to recover the debt.

Don’t worry; if you haven’t managed to write all these steps down, I’ve shared a link in the description below where you can download your FREE retention collection guide along with the formal letters to help collect your retention money.

The Takeaway:

Retention is money that is too often thrown away by the subcontractor, or they are late recovering as they don’t have the time or mechanisms to chase their retention monies effectively.

Sadly retention will be around for the foreseeable future, so don’t forget to download our guide and templates to make sure you collect your retentions on time, every time.