Construction Lawyer Melbourne

Retention in Construction Contracts

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A retention clause specified in a contract usually states the money to be retained during the project. This also describes the specifics of how and when a contractor could get paid back, as agreed by both parties. The share of retention money to be withheld differs from contract to contract.

If you would like to enforce your rights regarding retention, call our Melbourne contract lawyer. With the proper advice, you’ll get fully paid stress-free. The first consultation is free. 

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Retention in Construction

In construction, retention is the act where a principal contractor withholds a certain amount of money specified in the contract until the construction project is completed. This serves as an assurance that the subcontractor will carry out work properly and on time, avoiding instances where the principal must pay extra for the subcontractor’s shortcomings. 

This money can be claimed usually after the actual completion of the works, after the defects liability period, 3 months after the reference date of the final payment, or at the time frame specified in the construction contract.

But if it becomes harder to get this money back, then you can apply for adjudication, where you can receive the money as an adjudicated amount.

Retention Money

Retention Money is a withholding amount that serves to reassure the principal contractor that you will do your job well and right on time. If you completed the job with no problems, then you have the right to claim payment in full.

How much Retention Money can a contractor hold?

A common construction contract usually states that the amount of retention money is 5% of the contract’s value or a 10% deduction for every progress payment you receive. You should see this amount of retention money in your payment invoice.

Remember:  The retained amount will depend on what you have agreed in the contract.

The head contractor is responsible for maintaining a trust fund if the construction project has a value of over $20 million. He is obligated to give out annual account statements and withdraw money from the trust fund as stated in the retention clause and agreed in the contract. 

What are my rights on Retention Money?

When agreeing to a retention clause, you have the right to:

  • Make a payment claim for the amount retained;
  • Review the contract to avoid a  ‘pay when paid’ clause; and
  • Enforce your Security of Payment rights such as retention.

You have the right to claim retention money when you manage to do the building work that is up to par with building standards. Make sure to include in your payment claim the retained amount. It is your right to get paid especially when they signed a subcontractor agreement before starting the project.

You must also watch out for a ‘pay when paid’ contract clause as it is now prohibited. Even though you got paid already, their obligation to pay you back the retention money still exists and should be paid during the defects liability period or the period stated in the contract.

So if you have trouble getting the money back, make the principal contractor responsible and take it to adjudication if needed. You should be equally compensated for the building work you have done.

Reasons for Holding Money

Principal contractors need to retain money so that they can be protected in situations where the subcontractors do not take responsibility for their shortcomings. Thus opting to withhold an amount prescribed in their retention contract clause or through a payment withholding request.

But, they should not hold this money forever. A subcontractor deserves to be paid the retention money when it is due for any of the following reasons:

  • The adjudication application is withdrawn;
  • The payment claim has been paid;
  • The dispute is being resolved through the debt recovery process; and
  • 20 business days have elapsed since the adjudication application has been processed.

These reasons to apply for retention money that arises from the adjudication process. Some other scenarios may apply,  just look over your contract clause on retention again.

Claiming Retention Money

In most situations, you can state the amount of retention money in your payment claim. Just make sure that the principal contractor is responsible for paying you as agreed in the subcontract statement. 

For the next steps, follow the prescribed time frames in the contract. If they pay you as scheduled, then you are good. But if they don’t, take it to adjudication or the courts as a payment dispute.

The act of withholding money, however, can also happen during adjudication. Whatever the situation you have on retention money, the adjudication process will help you in what you should do moving forward. If you still don’t get paid, then go to the courts and initiate the debt recovery process.

Enforce your Retention in Construction Rights

Our construction lawyer in Melbourne will help you review your construction contract, including its retention clauses. We will help you enforce both your Security of Payment and subcontractor rights so we can give you expert legal advice if a retention clause is needed for your project thus preventing further payment issues.

The road to getting paid stress-free starts with a free call. The first one is FREE.

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Retention in Construction Contracts
Retention in Construction Contracts