Proposed changes to construction retentions raise questions about cashflow, existing contracts and responsibility for defects. What should commercial teams review while the legislation progresses?
For construction firms waiting to recover retained payments, the proposed ban raises an immediate question: what happens to money already tied up in existing contracts?
The Commercial Payments Bill is still before Parliament, so firms cannot yet assume that their retention arrangements have changed. But commercial teams can start reviewing how much is being held, when it is due for release and how defects would be managed under different payment terms.
That work involves more than changing a clause in the next tender. Finance staff need to know when cash is likely to arrive, while project managers need a workable process to complete outstanding work. Both depend on a clear understanding of the contract.
What happens to existing retentions?
The bill amended at Lords report stage on 15 September includes provisions dealing with retention clauses and the transition to new arrangements. Its final wording and commencement will determine how the changes apply. An announcement about reform does not, by itself, bring forward a contractual payment date.
For a firm with several projects underway, the sensible starting point is to examine each balance. How much has been deducted? What triggers its release? Is the money waiting on a certificate, an agreed date or the resolution of a dispute?
Those details can be lost when retentions appear as a single figure in the accounts. Breaking the total down by project reveals which sums need chasing, which depend on outstanding work, and which require advice about the terms. Amendments and side agreements matter as much as the name of the standard contract used.
The same exercise can expose a gap between the commercial team’s expectations and the finance forecast. A payment pencilled in for next month may depend on an action nobody has arranged yet.
Keep the cashflow forecast grounded
Take a simple example: a £1m package with a 3% retention calculated on that value represents £30,000. The figure alone says nothing about when the contractor will receive it. That depends on the agreed terms and the project’s position.
A forecast built around an assumed release date can therefore give a misleading impression of available cash. Where timing remains uncertain, showing the dependency allows the business to plan for it. Money expected from a change in the law should not be treated as available before the relevant arrangements are clear.
There is also a distinction between recovering existing balances and pricing future work. Current projects need reviewing against their obligations; new tenders need terms that reflect the position when the contract is entered into. Keeping those reviews separate helps avoid applying the wrong template to a project.
Defects still need a route to resolution
The payment debate also brings defect management into focus. If the parties are considering different security arrangements, they need to understand how a problem will be reported, assessed and put right.
Imagine a defect identified after a subcontractor has left site. A record of its location, the relevant specification and the correspondence gives the team a starting point. It becomes more useful when someone is responsible for agreeing the next action and confirming whether the work resolves the issue.
That process deserves attention alongside any discussion of bonds or guarantees. Their wording, cost, duration, and conditions need to be examined against the project’s risks. A familiar product name is not enough to establish what protection it provides or how a claim would work.
Bring the site and commercial teams together
Contract changes can look straightforward on paper and prove awkward in practice. A new process may depend on inspections being completed promptly or on records that the site team has not been asked to maintain.
A joint review gives commercial, finance and delivery staff the chance to identify those dependencies before terms are agreed. Legal advice can address the contract and jurisdiction, while the people running the work can explain how the arrangements would operate day to day.
Firms do not need to wait for the bill’s final passage to improve their records. Knowing what is held, why it is held and who is responsible for securing its release will put them in a better position to respond when the rules change.
