Retention money in construction: how much is held, when it comes back, and how to track it

Retention money is the part of each bill the employer holds back as security that the contractor will put right any defects. It is the contractor’s money, earned and certified, simply paid later: part when the works are taken over, the rest when the defects period ends.

Because it comes back a year or more after the work, retention is the money contractors most often forget to collect. On a firm with several contracts it can add up to the profit of a whole job, sitting in other people’s accounts with nobody chasing it.

How much is held on Pakistani contracts

The limit matters as much as the percentage. At 7% of each bill with a 5% limit, retention stops being taken once about 71% of the contract has been billed; at 10% with the same limit, once half has. After that, bills carry no retention deduction at all. Private contracts set their own terms, and many simply hold 5% or 10% of every bill with no limit.

When retention comes back

1. Half when the engineer issues the taking-over certificate, which says the works are complete.
2. The other half when the defects period ends, 365 days later on PEC’s 2023 terms.
3. PEC’s form for smaller contracts pays it all within 14 days after the defects period.

If defects are still being put right when the period ends, the engineer can hold back what that remaining work will cost. That is why a defects list closed on time is worth money: it is what releases the second half.

A worked example

On taking-over PKR 1,000,000 comes back; a year later, once defects are cleared, the last PKR 1,000,000. Work out your own figures with the retention money calculator.

Retention, performance security and tax

• Performance security is a bank guarantee, 10% of the contract on PEC’s terms, given at the start. No cash changes hands unless it is called. Retention is cash kept back from each bill.
• On PEC’s 2023 terms the performance security is halved at taking-over, at the same time as the first half of retention is released.
• Income tax under section 153 is usually withheld on each bill’s full gross value, retention included, so nothing more is deducted when retention is released. Some employers deduct as they pay instead. Confirm with your tax adviser.

Why retention goes uncollected

Retention is released long after the site team has moved on, against certificates nobody is watching for. The taking-over certificate arrives, the first half is due, and no one asks. A year later the defects period ends on a date nobody wrote down. Across several contracts the unclaimed total grows quietly, and the subcontractors’ retention you hold is often just as poorly tracked in the other direction.

In Smart Construction retention is worked out on each bill from the contract’s own percentage and limit, the balance held is always visible per project and per client, and subcontractors’ retention is tracked the same way on their bills. See construction billing software or book a demo.