Cash retentions ban: fix your contract admin

The cash retentions ban in the Commercial Payments Bill is still heading into law. After Lords Report stage on 15 September, BCIS confirmed on 22 September that the ban and the 60-day private / 30-day public payment caps remain intact. Third Reading is scheduled for 20 October before the Bill moves to the Commons.

That is the legislative headline. The commercial headline for Tier 1s, major housebuilders and developers is different. Retained cash has been a blunt performance lever for decades. When it goes, the winners are the teams with clean payment administration, not those who swap a holdback for an expensive bond and hope.

What Report stage actually locked in

According to BCIS, peers tried to amend or carve out the construction provisions at Report stage. None of those attempts succeeded. Private sector purchasers still face a 60-day maximum final date for payment. Public authorities stay on 30 days. Cash retentions in construction contracts are still set to be banned.

Two practical details matter for commercial teams:

Escrow and third-party payment arrangements remain allowed where they are simply used to make a payment. They cannot be used to hold money back as security for performance in a way that recreates a retention under another name. Legitimate staged and interim payments are unaffected.

Small Business Minister Lord Leong named performance bonds, retention bonds and warranty bonds among the alternatives under discussion. The government is working with surety providers, and the Construction Leadership Council has appointed an industry lead, with wider engagement across clients, providers and smaller firms increasing from September.

MFMac’s Erica Dickson has already put the employer and main contractor problem plainly: removing retention does not remove defects risk. Clients and main contractors will still want assurance that incomplete or defective work can be remedied. Performance bonds and parent company guarantees are the likely replacements, with insurance also in the mix. Those tools are usually dearer and harder for smaller firms to obtain than a simple cash holdback.

Why MCs and developers should not treat this as a subcontractor story

It is easy to read the Bill as a cashflow win for the supply chain. That framing is incomplete if you sit on the main contract or employer side.

You lose a familiar security mechanism against your subcontract packages. Your own client may also lose retention against you. The commercial relationship does not get simpler; it gets more explicit. Performance risk moves into bond wording, guarantee scope, insurance triggers, and, more often than people admit, into how tightly you run valuation and instruction.

BCIS polling makes that point sharper. Only 2% of respondents named retentions as the biggest cause of payment problems. Payment disputes sat at 24%, supply-chain practices and culture at 22%, and long contractual payment periods at 21%. Yet when asked which Bill proposal would have the biggest impact, the retentions ban led clearly at 35%, more than double the 16% who chose the 60-day cap.

In other words, the industry expects structural change from the ban, while its day-to-day pain remains disputes, culture and process. Legislation can strip out retained cash. It cannot certify a valuation for you, agree a variation instruction, or keep a pay less notice on time.

The ops gap the Bill will expose

Once retention stops being the default safety net, weak contract administration shows up faster.

If measured works are poorly evidenced, arguments land in the monthly valuation rather than being parked against a retention release months later. If a variation is verbally agreed on site and only papered later, you have a pricing dispute with no retention cushion while you argue about entitlement. If the client cannot see a clear path from application to certified sum, funders and development managers will ask harder questions about cash certainty under a 60-day outer limit.

That is where main contractors and developers should put effort now, during the transition window rather than after commencement. The Bills direction of travel is not ambiguous. Burges Salmon advised developers after Committee stage to plan on the assumption that retentions will be prohibited and to start considering replacement protections and supply-chain risk allocation. Report stage did not soften that message.

Worked example: one package without retention as the crutch

Take a £2.4m envelope package on a residential block. Under current practice, many commercial teams still think in terms of 5% retention: half released at practical completion, half at end of defects. That retained sum becomes informal commercial pressure when snagging drags or when a late design change is still being priced.

Under a retention-free regime, the same package needs a different rhythm:

1. Tender and award: state the bond or guarantee requirement clearly, and check that the preferred specialist can actually obtain it at a workable cost.

2. Monthly valuation: tie every applied sum to measured progress, approved samples and issued drawings, with a single application pack the QS and package manager both recognise.

3. Variations: no work on change without a numbered instruction. Pricing can follow, but the instruction trail cannot.

4. Pay less notices: if you intend to withhold for incomplete or defective work, do it through the statutory notice machinery with evidence, not by “leaving it in retention”.

5. Client reporting: show certified valuations and open variation instructions in one place so the developer or funder can see cash exposure without hunting through email chains.

None of that is exotic. Most Tier 1 commercial teams already claim to run it. After a cash retentions ban, soft process stops being papered over by cash sitting in the account.

Keeping drawings, tenders, RFIs, valuations and variation instructions in one project record helps once retention is gone. SubTrada’s client-facing valuation and variation trail is one example: variation approval becomes an instruction number, and certification schedules sit where commercial and client teams can both see them. The point is the audit trail, not the brand.

FAQ

When does the cash retentions ban take effect?

It is not live yet. The Bill cleared Lords Report stage on 15 September 2026, with Third Reading listed for 20 October before Commons stages. Earlier BCIS and Building commentary describes a phased transition after commencement, including a period during which new retention clauses become ineffective and later outstanding transitional sums fall into the statutory payment timetable. Treat commencement and secondary legislation as the dates that matter for live contracts.

Can escrow replace retention?

BCIS reports that escrow can still be used to make a payment. It cannot be used to hold money as security for contractor performance in a way that recreates retention. If your lawyers are drafting “escrow retention, expect challenge under the anti-avoidance approach peers discussed at Report stage.

What should developers ask main contractors to change first?

Ask for the replacement security package and for evidence that monthly valuation and variation instruction processes will stand up without retained cash. A bond schedule with weak certification practice is a false comfort.

Does the Bill fix payment disputes?

No. BCIS is explicit that peers’ Report stage debate reinforces the direction of travel on retentions and payment caps, but does not extend the Bill’s reach into payment disputes or wider supply-chain culture. Those remain contract administration problems.

What to do this quarter

Do not wait for Royal Assent to discover that your standard subcontract still assumes a 5% cash lever. Pick one live project and strip retention out of the commercial model on paper. Then test whether your valuation pack and variation instructions still hold when the client asks for a clear certified position. If the trail fails under that test, fix the process before you spend weeks arguing about bond premiums.

The firms that treat the cash retentions ban as a drafting tweak will spend 2028 explaining shortfalls. The firms that treat it as a contract administration test will already have the trail.