Retention is money the contractor has earned and does not yet have. A stated percentage is deducted from every interim certificate and accumulates as a fund that the employer holds.
It exists because the moment a contractor has been paid in full, the incentive to come back and fix the door that does not close properly is goodwill rather than money. Retention converts goodwill into a balance.
How the release works
Retention is normally released in two stages, and knowing which stage you are in is half of the administration.
At practical completion, typically half the accumulated retention is released. The building is usable. The remaining half stays.
At the end of the defects liability period, the balance is released, once outstanding defects have been made good and a certificate of making good has been issued.
A worked example
Contract sum KES 18,400,000, retention at five per cent, limited to a maximum of two and a half per cent of the contract sum.
Retention accumulates at five per cent of each valuation until it reaches KES 460,000, which is the cap. It then stops growing regardless of how much more is certified.
At practical completion, KES 230,000 is released. The contractor waits out the defects period holding KES 230,000 of their own money as the reason to come back when called.
Twelve months later, defects made good, the final KES 230,000 is released.
The three things to check in your contract
The percentage, and whether there is a cap. Many contracts limit the total retention to a percentage of the contract sum, so it stops accruing partway through. Without a cap on a long contract, the held sum can become disproportionate.
When each half is released, and what triggers it. Practical completion and the making good certificate are events that somebody has to actually issue. A defects period that expired eight months ago does not release anything by itself.
Whether the money is held separately. On larger contracts retention is sometimes held in a separate account, or replaced by a retention bond so the contractor keeps their cash. On small builds it is usually just held, which works until the employer has spent it.
What goes wrong
Nobody tracks the balance. The single commonest failure. Retention accrues quietly across twelve certificates, and at the end neither side can state the figure without rebuilding it from the certificates. It belongs on the cost report as its own standing line, every month, like any other liability.
Release is forgotten. A defects period ends, nothing is inspected, no certificate is issued, and the balance sits unreleased for a year. From the contractor's side this reads as a refusal to pay whether or not it was one, and it sours the relationship on the next job.
It is spent. An employer who treats accumulated retention as available cash discovers at the release date that it is not. It was never theirs. It is the contractor's money held for a purpose, and the purpose ends.
It is used as a substitute for supervision. Retention on a five per cent basis does not begin to cover the cost of remedying serious defective work. It is an incentive to return and fix small things, not insurance against a bad build.