Retention money is the part of each bill that is held back until the work has proved itself. It protects the party paying, but it is also easy to lose track of. A contractor who holds retention from ten subcontractors, and has retention held by its own client, can have a large sum sitting in separate registers with different release dates. This guide explains how retention usually works, what the defect liability period means and how to track retention so none of it is forgotten.
What is retention money?
Retention money is an amount deducted from each interim payment under a construction contract and held as security for the quality of the work. If defects appear and the contractor or subcontractor does not fix them, the party holding the retention can use it to get the work corrected, in the way the contract allows.
It is deducted on RA bills, the running account bills raised as work progresses. It is not a penalty and not a discount. It is money that has been earned but whose payment is deferred, and it is normally released once the conditions in the contract are met.
This is general information about common practice in India, not legal advice. Your own contract decides how retention works on your project; check it and take advice where needed.
How much retention is held?
Retention is often a small percentage of each bill, set by the contract. Some contracts also cap the total retention at a percentage of the contract value, after which no further deduction is made. Others allow the retention to be replaced by a bank guarantee. None of this is fixed by a single rule that applies to every project, so read the retention clause in each work order or contract rather than assuming a figure.
Here is how retention builds up, using a sample rate of 5% chosen for illustration only:
| Bill | Gross value this bill | Retention this bill (5%) | Retention held to date |
|---|---|---|---|
| RA-1 | 6,20,000 | 31,000 | 31,000 |
| RA-2 | 8,64,000 | 43,200 | 74,200 |
| RA-3 | 4,84,500 | 24,225 | 98,425 |
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Work orders, progress, RA bills, retention and advances for every subcontractor, with a portal they can use.
The defect liability period
The defect liability period (DLP) is a period after completion during which the contractor or subcontractor must return and repair defects in its work. Its length is set by the contract and it usually starts from completion or handover of the work, as the contract defines it.
Retention and the DLP are linked because retention is the security that the repairs will actually happen. Once the DLP ends and any defects notified during it have been fixed, the retention becomes due for release under the contract terms.
When is retention released?
Release terms vary. Common arrangements include:
- Release in one stage – the full retention is paid after the DLP ends and defects are cleared.
- Release in two stages – part of the retention is paid at completion and the rest at the end of the DLP.
- Release against a bank guarantee – retention is paid earlier in exchange for a guarantee covering the same amount.
Retention on the final bill
The final bill is where retention is easiest to lose. It should state the total retention held across all RA bills, any amount already released and the balance still due, with the date or event that triggers its release. If the final bill only shows the last period’s work, the retention figure has to be rebuilt from old bills months later, usually by someone who was not on the project.
Retention and other security
Some contracts also ask for a security deposit or a performance guarantee at the start of the work. These are separate from retention, have their own terms, and are released on their own conditions. Record each one on its own line so that releasing one does not get confused with releasing another. The contract says which of them applies to your work.
Tracking retention per subcontractor
A contractor usually holds retention from several subcontractors at once, each with its own work order, rate and completion date. Keep one line per subcontractor and work order, with what has been held, what has been released and what is still due.
| Subcontractor | Work order | Held to date | Released | Balance | DLP ends |
|---|---|---|---|---|---|
| Masonry and plaster | WO-014 | 1,20,000 | 60,000 | 60,000 | Mar 2027 |
| Shuttering | WO-009 | 45,500 | 0 | 45,500 | Not yet complete |
| Waterproofing | WO-006 | 82,300 | 82,300 | 0 | Closed |
| Total | 2,47,800 | 1,42,300 | 1,05,500 |
The balance column is the one that matters: it is money you owe, and your subcontractors know it. Keep the same register for retention your client holds from you, because that is money you are owed.
Retention money register in ExcelTrack retention held on each bill, releases and the balance per subcontractor, with a checklist for release letters.Free download · Excel · no sign-upSample retention release letter: what to include
A request for release of retention is a short formal letter from the party whose retention is held. It does not need legal language, but it does need the facts that let the other side check and approve it quickly. Have the wording reviewed against your contract before sending.
| Part | What to write |
|---|---|
| Reference | Project name, work order or contract number and date |
| Parties | Your company name and the name of the party holding the retention |
| Completion | Date the work was completed or handed over, with any completion certificate reference |
| DLP | Start and end dates of the defect liability period as per the contract |
| Defects | A statement that defects notified during the DLP have been attended to, with references |
| Amount | Total retention held, any amount already released, and the balance requested |
| Bills | List of RA bill numbers and the retention deducted on each |
| Payment details | Bank account details for the release, as on your records with them |
| Enclosures | Copies of the final bill, completion certificate and defect closure records |
| Sign-off | Name, designation, signature and date |
Mistakes that leave retention unclaimed
- No register. Retention deducted on bills but never totalled per subcontractor or per client.
- DLP end date unknown. Nobody knows when to ask for release, so nobody asks.
- Defect records missing. Release is delayed because there is no proof that defects were fixed.
- Retention mixed into the general payable. It gets paid early by mistake, or forgotten because it does not look like a normal bill.
- No follow-up after completion. Small balances across many old projects add up.
Do this in CivilPilot
In CivilPilot’s subcontractor management, each work order carries its retention terms along with line items, quantities and rates. RA bills are raised against progress recorded on the work order lines, with retention held back, so the amount held is recorded on every bill rather than worked out later. A work order set up correctly at the start is what makes this reliable.
Payables show what you owe each vendor and subcontractor by age, and payments go through payment requests with approval in finance and billing. CivilPilot does not send reminders for DLP end dates, so keep those dates in your own register. Everything works in a phone browser.
