Retention in subcontracts: what's standard and how to get it back
What is retention and how much is standard?
Retention is part of every progress payment that the builder holds back as security for your performance. The common Australian position — reflected in the standard forms — is 10% of each progress payment, until the total held reaches 5% of the subcontract sum. On a $400,000 package that's $20,000 of your money sitting in the builder's hands, often for a year or more.
Some subcontracts allow you to substitute bank guarantees or insurance bonds for cash retention. That costs a facility fee, but it keeps the cash in your business and turns "getting retention back" into returning a document rather than extracting a payment — usually worth the fee on larger packages.
When does it come back?
The typical structure releases retention in two halves:
- Half at practical completion of your works (or of the head contract — read which one your clause says, because the difference can be months).
- The balance at the end of the defects liability period, once defects are made good and, commonly, a final certificate issues.
The traps sit in the drafting: release tied to the head contract's practical completion rather than yours; defects liability periods that restart on rectified work; release conditional on paperwork nobody mentions until you ask — subcontractor's statements, unconditional final releases, warranties. A pre-signing review flags which of these your clause contains.
Is my retention protected if the builder goes under?
This is the real risk. Cash retention is normally just an unsecured debt — if the builder becomes insolvent, you queue with everyone else. Two protections exist, both partial:
- Statutory retention trusts. Several jurisdictions now require retention money to be held on trust in defined circumstances — NSW's retention money trust scheme for larger projects, Queensland's statutory trust framework under its Security of Payment regime, and Western Australia's retention trust scheme under its 2021 Act. Thresholds and phase-ins differ; whether your project qualifies depends on the state and the head contract value, and it's worth finding out at contract stage rather than at administration.
- The PPSR, for what you supply. Retention money itself isn't something you register — but if you supply goods before payment (materials, plant, equipment on hire), registering your interest on the Personal Property Securities Register is what stops those goods vanishing into an insolvency. Suppliers who register get their goods or their proceeds back; suppliers who don't, usually don't.
Neither protection is automatic. Both reward the subcontractor who set things up correctly at the start.
How do I actually get it back?
Retention doesn't come home by itself. The process:
- Diarise both release dates the day you sign — practical completion and end of defects liability, as your clause defines them. These dates are exactly the kind of obligation SubSync extracts from the contract and tracks against the project.
- Claim it, formally. Include retention release in a payment claim when each release date arrives. In most cases a claim for retention can be pursued under Security of Payment like any other payment — with the statutory timeline behind it.
- Clear the conditions early. Defects closed out, warranties and final documentation delivered before the release date, not after. Give the clause nothing to point at.
- Challenge set-offs in writing. If the builder deducts from retention for alleged defects or backcharges, require the contractual basis in writing and dispute what isn't supported — silence reads as acceptance.
- Chase the second half. The end-of-defects release is the one that slips: crews have moved on, the project file is closed, nobody's watching the date. That's free margin left on the table — a diarised claim is all it takes.
The pre-signing check
Four questions to ask of any retention clause before you price the job: What percentage, capped at what? Released against whose practical completion? What conditions attach to each release? And can you substitute a bank guarantee? They belong with the other pre-signing checks in our subcontract review checklist. If the answers are hostile, that's a line for your departure schedule while you still have leverage. Upload the subcontract and SubSync will flag the retention regime in plain English, free for your first review.