RETENTION
THE RETAIN GAME
KEN TRACEY OF THE ELECTRICAL CONTRACTORS’ ASSOCIATION (ECA)
TALKS ABOUT THE ROLE RETENTION PLAYS IN BUSINESS AND DISCUSSES SOME COMMON MISUNDERSTANDINGS SURROUNDING THE CONCEPT.
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he reasons for retaining sums from on account payments to contractors (retention) are often misunderstood and are appreciated better when viewed
from the employer’s position. In making payments on account the employer is accepting a risk that the contractor will complete the works. If he does not complete due to insolvency for example, the employer will suffer the costs of; delayed completion/occupation, appointing a new contractor and any remedial works arising etc. The retention money is intended to provide a contribution should these expenses arise.
SECURITY
Retention also provides security against the non-rectification of defects and a buffer to overpayment. Contractors carry similar risks when paying their own subcontractors as do subcontractors when paying their sub-subcontractors. As the risks apply to all in the contractual chain so the need to have the protection of retention passes down. Contractors can budget for retention
provided that they are aware of the conditions when tendering. Regretfully the agreed terms of release are often hampered by events or flouted by a
party in order to profit, this results in an intolerable situation.
BREAK FROM THE NORM
Sometimes retention is imposed on a party after work has started on the basis that it is ‘normal practice in the industry’. Although to apply retention is a normal practice there must be a provision in the contract. Abuse of the retention provision is extensive and takes a number of forms. The valuation rules in most standard forms provide for payment of certain items to be made gross of retention, generally these items include; direct loss and expense,
fluctuations and claims paid under the insurance provisions. However, a frequent malpractice is to withhold retention from the total sum due for payment. A common arrangement for the release
of retention is to pay half the sum held on practical completion of the main contract works. Then on the expiry of the Rectification Period the second half of the retention would be released following receipt by the contractor of the Certificate of Making Good (CMG). It is the process of obtaining the second half from the payer that poses the most problems. In practice the CMG will only be issued to the contractor when all defects in all
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