The Department for Business & Trade is consulting on major changes to retentions in construction.
The consultation runs until 23 October 2025.
This is a once-in-a-generation opportunity to secure fair treatment for contractors and subcontractors. The consultation proposes two options for retentions:
- Banning Retentions Clauses altogether in construction contracts so that no more retentions will be held.
- Requiring Retention Protection in a segregated bank account or through a bond or guarantee.
The Scale of the Problem
Over £4.5 billion is withheld in retentions across the UK construction sector each year.
While originally intended to incentivise quality and provide recourse for defects, in practice retentions have become a source of serious financial strain for SMEs. According to Government-backed research, 44% of contractors have lost retention funds due to upstream insolvency, and over 70% have experienced late or non-payment.
Retentions are often withheld without justification, delayed well beyond agreed periods, or lost entirely when employers or tier-one contractors collapse. With construction margins already under pressure, this misuse of retentions can represent the difference between solvency and insolvency for smaller firms.
The Government’s consultation rightly identifies these issues as systemic. But we believe that abolishing retentions outright would drive the problem underground.
Why abolition isn’t the answer but a blended approach is
Our consultation submission argues that banning retentions entirely would not solve the underlying issues and may even make them worse. In the absence of formal retentions, employers may respond by undervaluing interim payments or tightening the criteria for practical completion. These alternative behaviours are harder to monitor and regulate, but have the same net effect: withholding money from the supply chain.
Moreover, alternative instruments such as insurance or performance bonds are costly, slow to pay out, and impractical for smaller projects. Rather than replace retentions, our proposal is that they are properly safeguarded – ensuring the funds remain available when due, without imposing additional cost or bureaucracy.
We are recommending a blended legislative model, combining prohibition and protection in a proportionate way. Under the proposal:
- Retentions would be prohibited on contracts below £100,000, where the amounts withheld offer minimal practical benefit but create serious cashflow strain.
- For contracts over £100,000, retentions would remain permitted, but only if safeguarded in a third-party, FCA-regulated account.
This structure ensures SMEs are shielded from unnecessary risk, while maintaining a level playing field for employers seeking protection against defective works. It also allows the supply chain to plan with certainty, knowing that retention funds are ring-fenced and accessible when due.
A Market-Ready Solution
The UK Retention Deposit Scheme provides the very protection the Government is seeking to introduce. Regulated by the FCA and operated by an authorised payment institution, UKRDS safeguards all deposited funds at the Bank of England. Each project has its own uniquely addressed account, with sort code and account number, ensuring full transparency and auditability.
Once a payment certificate is uploaded, funds can be released automatically or by adjudicator instruction, meaning retentions are paid promptly when due. For contractors and subcontractors, this eliminates the need to chase payments; for employers, it ensures legitimate defects can still be rectified.
Critically, the Scheme has been designed to operate at low or zero cost. When the Bank of England base rate is at or above 3.75%, UKRDS operates without charge. In lower-rate environments, the only cost is a modest monthly fee of £25 per contract per month.
Benefits of the UK Retention Deposit Scheme
For Employers – Using retention deposit account for your construction retentions enhances security, transparency, and administrative efficiency, while reducing risks and promoting timely project completion.
For Contractors – Securing retentions against the Employer’s inability to pay and ensuring their prompt release is of paramount concern to contractors undertaking construction works in the UK.
For Sub-Contractors – As a Sub-Contractor (or sub-sub-contractor), you take the most credit risk in the construction supply chain. The insolvency of the Employer, someone you may know little about and have no direct access to, could mean that your Contractor does not receive their retention, and therefore lead to trouble with you recovering yours.
A Call to Government and Industry
The Scheme’s submission concludes with a call to action. With a functioning, tested, and regulated solution already in place, the Government has a unique opportunity to legislate with confidence. By mandating retention protection via trusted custodians, the sector could eliminate the scourge of lost and delayed retentions overnight.
“We are ready to support Government, employers, and contractors in embedding fairer, safer payment practices” a spokesperson for the Scheme commented. “The infrastructure is in place, the regulation is robust, and the need has never been clearer.“
To complete a submission to the consultation – https://ditresearch.eu.qualtrics.com/jfe/form/SV_0v37vzvBpfM5Exw
For more information or to schedule a demonstration, visit: https://www.retentiondepositscheme.org
You can view the online version of our submission here: https://www.retentiondepositscheme.org/dbt-retentions-consultation-2025
Peter Hillyard – Client Operations Manager
Dos & Co.
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