Construction Retention Clauses Collection: FIDIC, JCT and VOB/B

Construction Retention Clauses Collection: A Practical Guide

Retention is the employer's favourite word and the contractor's least favourite line item. Five percent sounds small until you do the maths on a GBP 12 million project. That is GBP 600,000 sitting in someone else's account while you pay subcontractors, suppliers and your own payroll. When the employer forgets to release it, or finds a reason not to, the collection route runs through specific clauses, specific statutes and specific timelines that most general commercial lawyers have never opened.

You already know retention exists. This guide promises three things: the exact clause numbers that trigger release under the three dominant regimes, the statutory route to force payment when the employer stalls, and the procedural difference between retention that is simply overdue and retention that the employer claims to dispute. We preview FIDIC first because it travels the furthest, then JCT because it governs most UK projects, then VOB/B for German and DACH work, then the comparative insolvency piece that most guides skip entirely.

How Much Retention Is Held in a Construction Contract?

The market range is 3 to 10 percent of each interim payment, with 5 percent the gravitational centre. The contract sets both the percentage and a cap called the Limit of Retention Money, usually expressed as a percentage of the Accepted Contract Amount. Once the cap is reached, the employer stops deducting. On a staged project with Sectional Completion, the release is proportional per Section, which matters enormously when one phase handovers cleanly and the next drags into the Defects Notification Period.

The 2020 UK Government consultation response on retention payments in the construction industry confirmed that 5 percent remains the norm, with a minority of contracts using 3 percent or sliding-scale models that halve the deduction after a trigger value.

When Must Retention Be Released Under a FIDIC Contract?

This is the question most commercial teams get wrong. FIDIC Red Book (1999 and 2017 editions, including the 2022 reprint) sets out the mechanic in Sub-Clause 14.9 with uncharacteristic precision.

On issue of the Taking-Over Certificate for the Works, the Engineer certifies release of half of the Retention Money. That is the first 50 percent. The balance, the remaining 50 percent, becomes due on expiry of the Defects Notification Period, typically 365 days, sometimes 730 days on heavy civils or infrastructure. If the Works are taken over in Sections, the release is proportional to the value of each Section.

The practical consequence is that a contractor who has reached practical completion but is still inside the DNP is entitled, today, to half of every penny retained. Employers who sit on the full amount until DNP expiry are in breach of 14.9, not exercising a discretion. That framing matters when you draft the letter before action.

Can I Claim Unpaid Retention Through Adjudication?

In the UK, yes, and you should. Section 108 of the Housing Grants, Construction and Regeneration Act 1996 gives every party to a construction contract the statutory right to refer a dispute to adjudication at any time. The adjudicator must reach a decision within 28 days of the referral. The referring party can agree to extend by 14 days, taking the total to 42 days, and that is the ceiling unless both parties agree otherwise.

The decision is binding until the dispute is finally determined by litigation, arbitration or agreement. In practice, the vast majority of adjudication decisions are never challenged because the enforcement route through the Technology and Construction Court is brutally fast and the costs of a losing challenge are painful.

Where the construction contract does not comply with Sections 108 to 111 of the Act, the Scheme for Construction Contracts (England and Wales) Regulations 1998, as amended in 2011, is implied into the contract. That means the statutory adjudication right cannot be contracted out of. You cannot drafted your way around it.

Section 113 separately prohibits "pay when paid" clauses, meaning the employer cannot make payment of retention conditional on having received payment from a third party. The single exception is upstream insolvency of the third-party payer, and even that exception is narrowly construed.

Are "Pay When Paid" Clauses Legal in the UK?

No. Section 113 of the 1996 Construction Act made them unenforceable except where the upstream party is insolvent. The 1996 Act, further reinforced by Part 8 of the Local Democracy, Economic Development and Construction Act 2009, shut this door hard. Construction employers have been finding creative workarounds ever since, typically by relabelling the clause as a "pay when certified" provision, which is a different beast and, depending on drafting, may survive. The correct first step when you see such a clause is to put the employer to strict proof that the clause is not caught by section 113.

UK JCT Trust Money vs German VOB/B Sperrkonto

Both systems try to solve the same problem: stop the employer from spending retention money that, economically, belongs to the contractor. They arrive at the answer using entirely different legal tools.

Under JCT, retention is trust money. Under VOB/B, it is blocked-account money. Different legal tools, same objective: stop the employer from spending money that is not theirs. The comparative point that almost every English-language guide misses is that the German system is arguably stronger, because the trust under JCT cl. 4.18 still sits on the employer's balance sheet and requires a contractor to actively assert the trust if the employer misapplies the funds. The Sperrkonto removes the temptation altogether by parking the cash at a third-party bank.

Disputed Retention vs Overdue Retention

The procedural route diverges sharply depending on what the employer actually says.

Overdue retention is retention that the employer accepts is due but has not paid. The contract trigger (Taking-Over Certificate, DNP expiry, Making Good Certificate) has been met. Nothing is contested. This is a classic debt claim. In the UK you pair a letter before action with a statutory adjudication referral. The adjudicator's 28-day clock focuses the employer's mind better than any other tool in construction law.

Disputed retention is retention that the employer resists on substantive grounds, typically alleged defects, contra-charges, set-off or counterclaim. This is not a pure debt claim. It requires a quasi-judicial determination on the merits of the defects allegation, the valuation of any remedial work, and whether set-off was properly notified under the payment notice regime in Sections 109 to 111 of the 1996 Act. Adjudication is still the right forum, the 28-day window still applies, but the evidence bundle is thicker and the drafting of the notice of adjudication has to capture the full scope of the dispute so that the adjudicator has jurisdiction to decide everything in one go.

Employers sometimes manufacture a dispute precisely to escape the fast-track treatment of a pure debt claim. The usual tell is that the defects are raised for the first time after the retention becomes due, with no contemporaneous site records. An adjudicator will notice.

Information Gain: What Most Retention Guides Miss

Two practical points that matter in a live collection file.

First, the FIDIC 14.9 split is not discretionary. When the Taking-Over Certificate issues, half of the accrued retention is payable. Not deferred, not reviewed, not held against future snags. The Engineer is obliged to certify. If you are chasing FIDIC retention and sitting inside the Defects Notification Period, you are entitled to half of the money now and the other half on DNP expiry. The number of projects where contractors fail to ask for the 50 percent tranche at Taking-Over is surprisingly high.

Second, insolvency protection across jurisdictions is not equivalent. If your employer is a UK company and the contract is JCT, the retention is trust money under cl. 4.18 and you have a proprietary claim that ranks outside the general pool of unsecured creditors. If your employer is a German company and the contract is VOB/B with a Sicherheitseinbehalt, the retention sits in a Sperrkonto outside the employer's estate entirely, which is the stronger position of the two. If you are contracting with a European group through an English-law JCT contract, you may want to insist on Sperrkonto-style ring-fencing because the JCT trust alone can be diluted by bad bookkeeping inside the employer.

How InterStation Handles Retention Collection

1. Contract audit. We identify the governing regime (FIDIC, JCT, NEC, VOB/B or bespoke), locate the retention clause, the release triggers, the Limit of Retention Money and any Sectional Completion carve-outs.
2. Trigger verification. We confirm whether the contractual release trigger has fired (Taking-Over Certificate, Practical Completion, Making Good Certificate, DNP expiry) with documentary evidence.
3. Letter before action. We issue a structured demand that cites the exact clause (for FIDIC, Sub-Clause 14.9) and sets a hard payment window before escalation.
4. Adjudication or local equivalent. In the UK, statutory adjudication under Section 108 of the 1996 Act. In Germany, VOB/B-aligned demand and, where appropriate, court proceedings targeting the Sperrkonto directly. In FIDIC projects, Engineer determination followed by DAAB or arbitration under Sub-Clause 21.
5. Enforcement. Once we have a binding decision or admission, we move to enforcement through the relevant court (TCC in England, Landgericht in Germany, or New York Convention recognition for arbitral awards).

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