Retention clauses
A retention clause lets the payer hold back part of every progress payment — typically 5% of the contract sum — as security for defects. The percentage is rarely the problem; the release terms are. Retention becomes a loss when release is tied to events you don't control, defined vaguely, or left to the other side's discretion.
The payer withholds a small percentage from each progress claim, releases half at practical completion, and the rest at the end of the defects liability period. It's security for fixing defects — not free working capital for the head contractor. The test for any retention clause: can you name the calendar date, or the event within your control, when each half comes back?
Release tied to the head contract ('when the principal releases retention to us') — that's a pay-when-paid clause wearing a disguise. Release on 'final completion of the project' when your trade finished a year earlier. Discretionary wording ('may be released'). No deadline on the defects-period release. And retention percentages above 5%, or applied on top of bank guarantees, which double the security for the same risk.
New Zealand holds retention money on statutory trust — it's your money held for you, with the trust arising automatically and surviving the payer's insolvency, and clauses that condition release on anything but your own performance are void (s 18I). WA runs a retention trust scheme (contracts over $20,000 since Feb 2024), and Victoria's April 2026 reforms added a statutory right to claim release of performance security. Elsewhere the contract mostly governs — which is why the wording matters. See your market's page: NZ, WA, VIC.
Cap retention at 5%. Tie release to your practical completion and your defects period, with named timeframes ('within 10 business days of…'). Offer a bank guarantee swap if cash retention hurts — the retention release games guide covers each ask with wording. And check the time bar clauses — a short claim window plus slow retention release is how subbies end up funding the project twice.
Common questions
5% of the contract sum is the common benchmark, often released half at practical completion and half after the defects liability period. Higher percentages, retention on top of bank guarantees, or retention with no stated release timetable are the signals to negotiate. The percentage matters less than the release terms — 5% held for four years is worse than 10% released on schedule.
Whatever the contract says — which is exactly the problem when it says 'upon release under the head contract' or names no deadline at all. Well-drafted clauses tie release to your own practical completion and your own defects period with fixed timeframes. In New Zealand, retention money is held on statutory trust and release can't lawfully be conditioned on anything besides your performance; WA's trust scheme and Victoria's 2026 security-release right add protection in those states.
You can ask — some trades and small works contracts run retention-free, and offering a bank guarantee or retention bond instead of cash retention is a standard compromise that protects your cash flow while giving the payer real security. Whether it lands depends on leverage; what's always negotiable is the release wording, and that's where most of the money is lost.
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