Retentions are being banned: what changes and what to do this year

You finished the job in March, half the retention came back in the summer, and the other half is 2.5% of a contract you can barely remember against a defects period that ended six months ago. The quantity surveyor who signed it off has moved on and the money is sitting in somebody else's current account earning them interest.

There is now a Bill in front of Parliament that proposes to stop the practice. This page is what it actually says, when each part of it bites, and what a small firm does about retention on the contracts it is signing between now and then.

Where the Bill is, exactly

The Commercial Payments Bill [HL] had its first reading in the House of Lords on 19 May 2026, its second reading on 9 June 2026, and its committee stage on 21 July 2026. It is at report stage in the Lords. Its long title includes the words "to ban retention clauses in the construction sector", and if it is passed it will be cited as the Commercial Payments Act 2026.

A bill is not an act. Clauses 11 to 16 of the Bill are the retention provisions, and clause 31(1) puts their commencement in the hands of the Secretary of State by regulations, so the day they start counting has not yet been appointed. The Department for Business and Trade's own impact assessment models the new requirements taking effect in FY2027/28, and the retention clauses in your current contracts are lawful and enforceable in the meantime.

Clause 30(2)(b) is worth knowing if you work outside England. Clauses 11 to 16 extend to England and Wales and Scotland only, because they amend Part 2 of the Housing Grants, Construction and Regeneration Act 1996, which is the statute that covers those three. Northern Ireland runs on the Construction Contracts (Northern Ireland) Order 1997, and Part 2 of Schedule 2 to the Bill amends that Order's payment notice machinery without adding the retention ban to it.

What counts as retention under clause 11

Clause 11 inserts a new section 113A into the 1996 Act, and the definition is deliberately wide. It covers a party deducting or retaining sums equating to a percentage of the amount payable for goods, services or works, or of an interim payment, or of the contract total, "until any condition for release or partial release of the sums to B ... is met".

Section 113A(2) then spells out what those conditions look like, and reading it is like reading the front page of a subcontract order:

• the payee has met all of its obligations under the construction contract;
• the payee has met specified conditions under the construction contract;
• "a period set aside for making good any defects has expired".

That third one is the rectification period under a JCT form and the defects date under an NEC form, named in a statute in all but brand. Sections 113B(1) and 113C(1) catch a retention clause in "a construction contract or related agreement (whether or not in writing)", so a retention line typed into an order confirmation or a schedule of amendments is caught the same way a printed clause is.

The three dates the Bill sets running

Everything keys off one day: the day section 113B is commenced. Call it day one.

Two different words are doing two different jobs there. A clause agreed after the transition period ends is void under section 113C(3): it has no effect from the moment it is written. A clause agreed during the transition period is ineffective from the day after the last retention day under section 113B(3), which means it works for three years and then stops, and any money still sitting behind it falls due through the ordinary payment machinery in sections 110A, 110B and 111.

Counting it end to end from 1 April 2027

The commencement date is set by regulations and has not been appointed. Count it from 1 April 2027, which is where the impact assessment puts the first year of costs, and the whole thing resolves:

Shift the commencement date and every row below it shifts with it by the same number of days. The shape does not change: roughly two years in which retention still works but the clock is visibly running, a third year in which existing arrangements run out, and a hard payment date about three months after that.

The 50% sum in section 113E

This is the part that has had the least coverage and is the sharpest thing in the Bill for a subcontractor.

Clause 15 inserts section 113E. A "retention debt" arises where the section 111(1) duty to pay the notified sum applies to a sum, is not complied with, and the sum is retention. Where a retention debt arises after the end of the transition period, it is an implied term of the construction contract that the payee may recover a fixed sum from the payer, and section 113E(3) sets that fixed sum at the higher of £40 or 50% of the retention debt.

Section 113E(4) makes any contract term void so far as it tries to exclude or vary that implied term. Section 113E(6) makes the fixed sum additional to statutory interest and to the section 5A compensation under the 1998 late payment Act, which the Bill renames the Commercial Payments and Interest on Late Payment Act 1998. Section 113E(7) applies the implied term to construction contracts entered into before the transition period began, during it, and after it, so a contract signed today picks this up for any retention debt that arises after the transition period ends. Section 113E(5) lets the fixed sum be remitted in whole or part if the interests of justice require it.

On £9,400 of retention withheld past the final date for payment with no valid pay less notice served, ninety days late:

Statutory interest runs at 8% over the Bank of England official Bank Rate, which has been 3.75% since 18 December 2025, giving 11.75%. The mechanics of adding it are in charging interest on a late invoice.

Why it took nine years to get here

Retention has been in the sector for over a century. The pressure to end it has a dated paper trail, and the dates matter because they tell you how much weight to put on the current attempt.

The government consulted on cash retention from 24 October 2017 to 19 January 2018. Peter Aldous, then MP for Waveney, gave a private member's bill "to make provision about protecting retention deposits in connection with construction contracts" its first reading on 9 January 2018, six days before Carillion went into liquidation on 15 January 2018. That bill was listed for a second reading that was repeatedly postponed and it fell with the 2017-19 session.

Carillion is the reason the retention argument changed shape. Firms holding retention hold it in an ordinary bank account, which makes the subcontractors owed it unsecured creditors of the holder. When a large payer fails, retention held from every firm below it on every live project goes into the same pot as the rest of the unsecured debt.

The 2020 government response to the 2017 consultation reached no landing: it recorded "the breadth of views within the sector" and committed to keep working towards consensus. Reform then came back in two steps. The Reporting on Payment Practices and Performance (Amendment) Regulations 2025, SI 2025/75, in force 1 March 2025 for financial years beginning on or after 1 April 2025, made large companies publish whether they use retention clauses, their standard percentage, the contract value below which they hold none, how they release it and how much they are holding, free to search at check-payment-practices.service.gov.uk. Then the Department for Business and Trade consulted on late payment from 31 July to 23 October 2025, drew 867 responses of which 586 were from businesses and 238 from the construction sector, and published its response on 24 March 2026.

That response put two options to the sector. Option A made it unlawful to deduct and withhold retention. Option B allowed retention but required it to be segregated in a separate account or backed by an instrument of guarantee. 87% favoured reform, 53% of those could support either option, and the government chose Option A: "We propose to take forward a legislative measure to prohibit the deduction and withholding of retention payments under the terms of a construction contract."

The number that decided it

The impact assessment estimates the total value of retentions in the UK in 2025 at between £6.0 billion and £11.0 billion, with a central estimate of £8.4 billion in FY2024/25 prices. The average level withheld is around 5% of contract value, and the mean length of time a retention is held is 18 months.

The 2017 research behind those figures found that 71% of contractors with retentions held from them had experienced delays in getting the money, that over half had experienced partial or full non-payment, and that 44% had lost retention through an upstream insolvency, on around 1% of their contracts, at an average of £27,300 lost per affected contract, and £79,900 per affected contractor across all their contracts, over three years in 2016 prices, with £25,900 for a tier 2 firm and £24,600 for a tier 3 firm over the same period. The median loss per contract was far lower at £4,000, which is the number that explains why so little of it is ever chased.

The sentence that explains why the government reached for a ban rather than a protection scheme is in paragraph 53 of the impact assessment: the evidence suggests adjudication "is not a cost-effective process where the claim value is less than approximately £30,000", and "retention sums below this amount are vital for SME sub-contractors". The remedy exists and the sums are too small to use it on.

Pricing a job where retention is still being taken

Until commencement, retention is a cost of the contract, and it is a cost you can put a number on rather than a nuisance you absorb. Take a £48,000 subcontract over a six-month build, 5% retention, half released at practical completion and half after a twelve-month rectification period.

That is 0.49% of the contract value, and 18% of contractors surveyed in the government's research already said they raise tender prices by an amount equal to or higher than the retention. Half a percent on the contract sum is a defensible, arithmetic-backed line to add, and it is a number you can put in front of the payer rather than an argument you have to win.

Now price the alternative. The impact assessment's own assumption for the cost of a bond or insurance in lieu of retention is 3% of the retention amount for a small business, 1.8% for a medium one and 0.8% for a large one. On this job that is £72 to the payer against £235.50 to you. The security costs the person holding it about a third of what holding it costs you, and that ratio is the entire negotiation.

Asking for a bond instead of cash

JCT has published its own position on this: the forms already let the parties insert nil in the contract particulars, and a bond in lieu of retention has been an optional provision in the JCT suite since JCT 98. The percentage, the release conditions and the bond option are blanks on the front end of the contract rather than rules printed in the conditions, which is why the impact assessment expects the change to land lightly on drafting: "most construction contracts use standard forms of contract, and the bodies that own these will adapt them if required by law".

So the ask is a small one, and it is a filled-in box rather than a bespoke amendment. Put it in writing at tender stage, before the order is issued, in four lines: the retention percentage you are being asked to carry, the cash value of it on this contract, the cost of a retention bond for the same value at the rate the government's own assessment uses, and an offer to provide one at your cost if the retention line is set to nil. On a job where the retention is small enough that a bond is not worth arranging, ask for a retention-free threshold instead, which is one of the things large payers now have to publish under SI 2025/75, and which you can look up before you price.

What to put in your terms between now and commencement

Five drafting moves, all of which are worth having whether or not the Bill completes its passage.

Release on a date, not on somebody else's event. The impact assessment names the problem precisely: practical completion is "often not clear or transparent when this event has taken place, making it difficult for creditor businesses to effectively recover retentions", and it is harder still at the end of a defects period "typically 12-24 months post-practical completion ... and the responsible project team has been dispersed". A calendar date releases itself. A certificate has to be chased.

Cap the rectification period in months, with a longstop. Twelve months from practical completion of your works, with a backstop date that applies if practical completion is not certified, keeps the second half of your money from drifting with the main contract programme.

Kill the link to the contract above you. Section 110(1A) of the 1996 Act already means payment cannot be made conditional on performance under another contract, and the government's own research found 10% of tier 2 and 3 contractors had been told their retention was unreleased because the client had not released the main contractor's. That is a clause that does not work, and saying so in writing costs a paragraph.

Write in the bond option and the price of it. Even where the payer declines, having it on the order gives you the figure to argue with at the next tender.

Watch the payment schedule, not the retention line. The impact assessment identifies the material circumvention risk in its own words: firms "would seek to adjust the schedule of payments under the contract, to move payments to later periods". A retention line that disappears while the valuation cycle stretches from monthly to bi-monthly is a worse deal, not a better one. Where a set of terms arrives with the retention removed and something else moved, it is worth an hour with a solicitor who does construction work before you sign it.

One further protection arrives with the ban itself. Section 113D voids any variation of a pre-existing retention clause agreed after the transition period ends, unless the variation is more favourable to the payee. An old contract cannot be re-papered to hold your money for longer once that door closes.

What changes on the notices at the same time

The same Bill tightens the notice machinery your retention application already runs through. Schedule 2, Part 1, paragraph 3 replaces the negotiable "prescribed period" in section 111(5)(a) with a flat seven days, and inserts a new section 111(6A) so that a pay less notice which is not valid is treated as not having been given at all, leaving the full notified sum payable. Retention released against a written application is a payment application like any other, which is the mechanism set out in getting your retention released and in what happens when no pay less notice arrives.

What it costs

There is no monthly subscription on AEC Stack. The platform fee is 2.5% of each invoice processed through the platform, taken when the invoice is paid, so a quiet month costs nothing.

Retention lives on the job rather than in a spreadsheet. Each valuation carries the percentage deducted, the running total of what is held builds itself as you invoice, and the practical completion date and the end of the rectification period sit on the job as dates that come round on their own.

Open a job with the retention line on it, put in the contract sum and the percentage you are being asked to carry, and see what the next three years of it are worth.