How to track retention on a construction contract

Retention is a percentage of each certified amount that the client holds back as security, released in stages once the work is complete and any defects are put right. To track it properly you need three things: what is being held, on which job, and when it is due back. Miss any one and money quietly goes missing.

Retention exists to give the client a reason for the contractor to come back and fix snags. A slice of every payment, commonly 5 or 10 per cent, is kept back rather than paid, and it is only released when the job has proven itself. For the contractor it is real money sitting out of reach, so it is worth tracking to the last cent.

How retention builds up

On every progress certificate, retention is deducted from the gross value certified to date. Because certificates are cumulative, the amount retained grows as the job grows, often up to a cap written into the contract, for example once retention reaches 5 per cent of the contract sum it stops accruing. The key figure is the running total: the sum of all retention held across every certificate on that contract, at any moment.

How retention is released

Release usually happens in two stages, and the dates come from the contract, not from memory:

• At practical completion. When the works are handed over and usable, typically half of the retention is released.
• At the end of the defects period. After the defects liability or maintenance period, once any snags have been put right, the balance is released.

The trap is that the second release depends on a date that can be a year or more after the work finished. By then the job is off everyone's desk, the paperwork is filed, and the retention is easy to forget, which is exactly how contractors leave money on the table.

What good retention tracking looks like

• A running total of retention held, per contract, that updates on every certificate automatically.
• The release dates recorded against the contract, so the two release stages surface when they are due rather than when someone remembers.
• Retention shown as its own line on every certificate, so the client and the contractor see the same number.
• A clear view across all live contracts of the total cash tied up in retention, which for a busy contractor can be a serious sum.

Retention bonds

Some contractors offer a retention bond instead of cash retention: a guarantee from a bank or insurer that gives the client the same security while the money stays in the contractor's business. Whether that is worth the bond's cost depends on how much cash the retention would otherwise lock up, which is another reason to know the running total at all times.

Tracking all of this in a spreadsheet works until a job closes and the file is archived. This is the gap Orbit for contracting closes: set the retention percentage on the contract and it is held back on every certificate, kept as a running total per job, and flagged when a release is due, so retention is money you collect rather than money you forget.