Retentions payments under NEC contracts guidance

The publication explains how NEC contract suites deal with defective work and retentions, and to explain that a retention fund may not, in fact, be needed.

The contractual practice of retention payments is intended to provide security against defective work, and the insolvency of businesses in the construction supply chain. The principle is to secure performance and incentivise the elimination of defects in an industry where the quality of work remains inconsistent. However, they can create problems for businesses throughout the supply chain due to the late and non-payment of retentions or through upstream insolvency.

Steve Bratt, Chair of CLC's Business Models Workstream, said: "The long-term aim is to eliminate the need for retentions altogether. This guidance illustrates that often the need for retentions can be avoided through good contract management and selection of contractors with a good track record of quality work.

“I would like to thank the NEC Board for their collaborative approach to working with CLC colleagues on this longstanding, contractual issue.”

Peter Higgins, Chairman of the NEC4 Contract Board, said: "The construction industry has traditionally thought of a retention fund as a necessary and inevitable part of the cost of doing business, but NEC contracts took a different approach, treating retentions as an option to be used only if necessary. NEC is pleased to have worked with the Construction Leadership Council in preparing this guidance on the use of retentions under NEC contracts, and in particular highlighting when holding a retention fund creates an unnecessary expense for contracting parties."

A free webinar to support the new guidance and an opportunity to learn more is scheduled for Monday 16 January 2023 at 14:00. To register initial interest, please contact [email protected]. We request that should any members or affiliates attend this webinar, they provide us with relevant feedback in order that we are aware of any issues or potential action that we need to take.