The Retention Ban Nobody's Actually Ready For

I've sat in enough final account meetings to know the exact moment retention gets mentioned. Someone leans back, someone else checks their phone, and the conversation quietly shifts from "when do we get paid" to "when do we maybe get paid, once someone's happy, sometime next year."

That moment is about to disappear. And most of the industry hasn't clocked it yet.

The Commercial Payments Bill, currently working its way through Parliament, will amend the Housing Grants, Construction and Regeneration Act 1996 to ban retentions outright. Not cap them. Not require them to sit in a trust account. Ban them — broadly defined as any arrangement where one party holds back a percentage of what's owed until some condition, usually the end of the defects period, is satisfied. The ban is being phased in over two years, but the direction is set.

If you've spent any time as a subcontractor, you already know why this matters. Retention has never really been about quality assurance — that's the story employers tell. In practice it's free credit. Three to five per cent of your contract value, sat in someone else's bank account, earning them interest, for the better part of a year, sometimes longer if the main contractor goes under before releasing it. You did the work. You're still waiting to get paid for it.

So why isn't everyone celebrating?

Because the industry doesn't actually know what replaces it yet.

What's likely to fill the gap

Performance bonds, parent company guarantees, retention bonds, defect insurance, escrow accounts — all of these are being floated as alternatives. All of them cost something. And that cost has to land somewhere in the supply chain. My honest read, having priced enough subcontract packages to know how this works: it lands on the subcontractor, just wearing a different hat. A bond premium instead of a retention deduction. Insurance-backed warranties baked into the tender price instead of held back at valuation.

The people who wrote the bill know this too — there's an anti-avoidance clause specifically designed to stop main contractors from restructuring payment schedules to recreate the economic effect of retention under a different name. Which tells you something: the government expects the industry to try exactly that.

What this actually means if you're a subcontractor

Don't assume the ban is a straightforward win and stop paying attention. Read whatever replaces the retention clause in your next subcontract just as carefully as you'd have read the retention clause itself. If a main contractor swaps "5% retained until defects liability period ends" for "bond premium recovered via reduced interim valuations," you haven't gained anything — you've just had the same risk repackaged with worse visibility.

What this means if you're a main contractor

You're about to lose your cheapest form of security. Retention cost you nothing beyond ill will. Bonds and escrow cost real money, and the surety market isn't currently priced or resourced to absorb every construction contract in the country switching to it overnight. Start having the conversation with your finance team now, not when the transition period runs out.

The bit nobody's saying out loud

This reform only works if it's enforced. The industry has a long history of writing brilliant payment terms into contracts and then quietly ignoring them once the ink's dry. A ban on retentions is only as good as someone's willingness to chase a main contractor who finds a workaround. Watch what the Small Business Commissioner actually does with its new powers — that's the real signal, not the bill itself.

Two years feels like a long runway. It isn't, once you factor in how long it takes standard form contracts, subcontract templates and internal finance processes to actually change. If you're still pricing retention into your cash flow forecasts for 2028, it's worth starting the conversation now about what you'll be pricing instead.