What Is Retention in Construction Contracts?
Retention money is a percentage of each certified payment that the employer holds back from the contractor as security until the works, or a stage of them, are completed and defects are corrected. It is released in agreed stages, commonly at completion and at the end of the defects period.
How retention works
Each time a payment is certified, the contract's retention percentage is deducted from the amount due and held. The held amount builds up with every certificate until it reaches any cap the contract sets. The contractor is paid the balance, so the employer keeps a sum to draw on if the contractor fails to finish or fix defective work.
When is retention released?
The release rules are written into the contract. A common pattern is:
- A first part is released after completion or issue of the taking-over certificate.
- The remainder is released after the defects liability period ends and defects are corrected.
- Some contracts allow a bond or guarantee to replace cash retention.
Retention versus a performance bond
Both give the employer security, but retention is cash withheld from payments while a performance bond is a guarantee issued by a bank or insurer. Contractors often prefer a bond because it protects their cash flow. Use our retention calculator to see how the held amount builds up over a series of certificates.
Retention on Gulf projects
Gulf contracts commonly build on FIDIC-style conditions with particular conditions that set the retention percentage, any cap, and the release stages. Rates and release rules differ between employers, so always read the contract data and particular conditions rather than relying on a typical figure.
How Arkan handles retention
The Finance module has a Retention page that shows the position on one screen and records each release.
- Summary cards show the configured retention percentage, total withheld, total released and the outstanding balance.
- The balance is calculated from the retention percentage applied to certified payments minus processed releases.
- Create a release through a two-step wizard; the release is processed immediately and cannot be undone, so check the amount first.
- Export the retention grid to Excel or PDF.
Frequently asked questions
What is retention money in simple terms?
It is part of the contractor's earned payment that the employer keeps back as security until the contract's release conditions are met.
What percentage is retention?
The percentage is set in the contract and varies by project. There is no single standard rate, so check the contract data or particular conditions.
Can a bond replace retention?
Only if the contract allows it. Some contracts accept a retention bond in place of cash retention; others require cash to be held.
Is retention the same as the defects liability period?
No. Retention is the money held. The defects liability period is the time during which the contractor must correct defects, and the final release of retention is usually tied to its end.
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Last updated: 2026-10-14. Definitions are general guidance. Your contract and project procedures govern.
