Problem: Construction business having trouble claiming retention money back:
We are a small business in the construction industry and have worked for one particular client on various jobs for about 3 years, although we have never had an official written contract in place in all of that time.
The client is a sub-contractor that is employed directly by main contractors, and we were told in an email about 3 years ago by the client that a 3% retention will be deducted from our payments.
Our problem now is claiming this retention back as it is over £10,000. The client says that we will not get the money until they receive a certificate of making good defects from the main contractor. Even though we have worked on over 15 jobs, the client says that a retention is not due on any of them despite being completed by us between 1 and 3 years ago, and not receiving any complaints.
Where do we stand with this legally?
Response: Construction business retention money dispute advice:
You will have a series of construction contracts (for each project), albeit the contracts are just not evidenced in writing. It will, therefore, come down to what terms and conditions can be proved were agreed from the outset of each contract.
You have said that when you started working for your client, you were informed that your payments would be subjected to a 3% retention. What I do not know is what terms were agreed as to the retention insofar as to the length of the period that it would be held for, the reason and importantly, what would be the trigger that would allow the monies to be released.
When you recently chased your client for the release of the monies, you were told that the monies would only be released upon your client receiving a certificate of making good defects from the main contractor (who presumably is your client’s employers on each of the contracts). Because you have only just been made aware of this condition, it is not enforceable, purely because it is a retrospective term that has not been agreed.
But that still does not answer your question as to how you can secure the retention monies given you informed from the outset of every contract that your payments would be subject to a 3% retention. In such circumstances, the Housing Grants, Construction and Regeneration Act 1996 (as amended by the Local Democracy, Economic Development and Construction Act 2009) (commonly referred to as “the Construction Act”), comes to your rescue.
Paragraph 110 of the Construction Act requires that every construction contract a) provide an adequate mechanism for determining what payments become due under the contract, and when, and b) provide for a final date for payment in relation to any sum which becomes due. It then goes onto say that this condition is not satisfied where a construction contract makes payment conditional on a) the performance of obligations under another contract, or (b) a decision by any person as to whether obligations under another contract have been performed. Therefore, since there is no trigger that would end the retention period, your client is not entitled to hold any monies from your payments, meaning that you can now claim back these monies.
© Michael P. Gerard
The advice provided is intended to be of a general guide only and should not be viewed as providing a definitive legal analysis.