Construction Retentions and Late Payments: What UK Subcontractors Need to Know

Profit on paper does not pay Friday's wages

A subcontract can look profitable while cash is tied up in uncertified work, retentions and overdue payments. Those balances need different actions. A retention awaiting a contractual release event is not the same as a payment that has passed its final date for payment. Mixing them in one debtor total makes collection harder.

For every job, separate work applied for, the notified amount, deductions, retained sums, cash received and disputed balances. Use the signed subcontract and amendments to establish dates. The following is a practical overview, not legal advice on any particular contract.

How retention affects subcontractor cash flow

Retention is money withheld under agreed contractual terms as security for performance or defects. Check the percentage, any cap, release conditions, required evidence and the person responsible for authorising release. Do not assume another contractor's standard terms apply to your package.

A release linked to an event elsewhere on the project may sit well beyond the end of your own work. Record both the expected event and the evidence needed to establish it. Ask about the terms before signing, then keep completion and defect-closeout records that support the release request.

Existing payment requirements: start with the right jurisdiction

For qualifying construction contracts in England, Wales and Scotland, Part II of the Housing Grants, Construction and Regeneration Act 1996, as amended, provides a statutory payment and adjudication framework. Scope and exclusions matter; Northern Ireland has separate legislation. Obtain contract advice for the applicable jurisdiction.

Applications, due dates and notices are different steps

An application sets out the value requested with supporting calculations. The due date establishes the relevant payment point; the final date for payment is the payment deadline. Under section 110A, qualifying contracts must provide for a payment notice no later than five days after the due date, identifying the sum and its calculation basis.

A pay less notice has a separate role and timing requirements. Do not use the five-day payment-notice rule as its deadline. Establish the contract's notice timetable, valid service method and recipient before the first application. A missed notice or disputed deduction needs prompt specialist review; a spreadsheet cannot determine legal entitlement.

Proposed reforms are a separate track

The government's late-payment consultation response, updated 24 July 2026, proposes prohibiting construction retentions and further work on implementation. A policy response does not itself amend a subcontract or establish a commencement date. This article does not treat that proposal as an operative ban.

Before relying on any reform, check the enacted legislation, commencement provisions and transitional treatment of your contract. Until the applicable position is established, keep tracking the actual retention terms and pursue amounts under the relevant contractual and statutory framework.

A practical payment-tracking example

The following dates and terms are illustrative, not statutory defaults. Ignore VAT, CIS deductions and previous payments for this simple example: an application is £40,000, the notified gross valuation is £38,000 and an assumed contractual 5% retention is £1,900. The expected payment is £36,100.

If only £30,000 arrives, reconcile the £6,100 payment shortfall separately from the £1,900 retention and £2,000 valuation difference. A simple £10,000 unpaid balance conceals three distinct issues. Log the payment reference, notices received, query owner and next action.

Make the register useful to the site team

Store proof of service alongside the application, instructions, delivery records and agreed measures. Give the quantity surveyor responsibility for valuation differences and the accounts team responsibility for cash reconciliation. Escalate missing notices or deductions early enough for the adviser to review them before deadlines expire.

Follow the subcontractor margin guide for wider commercial controls. Use the cost tracking guide alongside the cash register: expenditure control and customer collections answer different questions.

Practical takeaway

Before the next valuation, confirm the application cut-off, due date, final date for payment, notice rules and retention release events in one contract-specific calendar. Set reminders with named owners, and distinguish contractual retention from overdue cash in every weekly review.

Frequently asked questions