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Releasing retention monies

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Posted on 07 May 2012

Prior to the changes to the release of retention, as embodied in the Local Democracy, Economic Development and Construction Act 2009, it was commonplace (and legal) for release of retention to be linked to completion of the works under the main contract. This meant that subcontractors were often uncertain as to when those retention monies would be released.

However, for construction contracts entered into on or after October 2011, the release of retention monies can no longer be linked to certification or completion of works under the main contract or any other contract up the line.  

Nonetheless, we still see contracts linking release of retention to completion or certification under the main contract.  Such provisions are invalid under the amended Construction Act. Not only would both the courts and adjudicators strike them out, but they would also be replaced by the provisions from the Scheme for Construction Contracts (England and Wales) Regulations 1998 (as amended).  

Unfortunately the Scheme does not expressly set out when retentions should be paid, which could put the payer in a difficult position.

For example, it could be argued that the due date for payment of retention is simply the date of when the sub-contractor makes a claim for retention monies. No doubt such uncertainty will be tested in court in due course.

In the meantime, a common approach to avoid such risk is for the contractor to specify a day for payment of the balance of retention monies in the contract. However, to enable the contractor to protect its own position up the line, this date for release is likely to be quite some time in the future, to allow for any certificate of making good to be issued under the main contract.

The downside to the Construction Act amendments is that sub-contractors may have to wait longer than previously for release of the final balance of retention monies. But, on a more positive note, at least sub-contractors will have a definite date for the release of the retention monies, which should help in financial planning.

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