Retention in Construction: What Subcontractors Need to Know

What is Retention?

Retention (also called "retention money" or "holdback") is a percentage of each progress payment that the builder withholds as security against defects. The idea is simple: the builder holds back some of your money to make sure you come back and fix any issues after the work is complete.

In practice, retention typically works like this:

• During construction: The builder deducts a percentage (usually 5%) from each progress payment
• At practical completion: Half the retention (2.5%) is released
• At end of defects liability period: The remaining half (2.5%) is released

On a $500,000 subcontract, 5% retention is $25,000. That's a lot of money sitting in someone else's pocket for 12-18 months after you've finished the work.

How Retention is Calculated

Retention is usually calculated on the gross value of work done (before any previous payments). The typical structure:

• Retention percentage: 5% (sometimes 10% in the early stages, reverting to 5% later)
• Retention cap: Usually 5% of the total contract value. Once the cumulative retention reaches this cap, no further deductions are made.

Check your contract carefully. Some contracts have higher retention rates, different caps, or unusual release triggers. The contract terms control — unless they conflict with legislation (more on that below).

State-by-State Retention Rules

Retention rules vary significantly across Australian states. Here's a breakdown of the key protections:

Queensland

QLD has the strongest retention protections in Australia under the Building Industry Fairness (Security of Payment) Act 2017:

• Retention trust accounts are mandatory for projects over $1 million — the builder must hold your retention money in a separate trust account, not in their general operating account
• The builder is a trustee of those funds with fiduciary obligations
• If the builder goes insolvent, the retention money in trust is protected from creditors — it's your money, held in trust, and it stays yours
• Maximum retention: 5% of each progress payment, capped at 5% of the total contract value

New South Wales

NSW introduced retention trust accounts in 2024 under the Building and Construction Industry Security of Payment Act 1999 (as amended):

• Retention trust accounts required for government projects and projects over a certain threshold
• Head contractors must hold retention money in a trust account on behalf of subcontractors
• SOPA provides adjudication rights for retention disputes

Victoria

VIC is still catching up on retention protections:

• No mandatory retention trust accounts (as of 2026)
• Retention is governed by contract terms
• SOPA provides adjudication for retention payment disputes
• The Victorian government has flagged reforms, but nothing legislated yet

Western Australia

WA's Building and Construction Industry (Security of Payment) Act 2021 includes:

• A maximum retention rate of 5%
• Retention trust accounts for projects over prescribed thresholds
• Adjudication rights for retention disputes

South Australia

SA currently has limited retention-specific protections:

• Retention governed primarily by contract terms
• SOPA covers adjudication of retention payment claims
• No mandatory trust account requirements (as of 2026)

When Should Retention Be Released?

Retention is released in two stages:

First Half — At Practical Completion

When the project (or your scope of work) reaches practical completion, half the retention should be released. Practical completion generally means the work is complete and fit for its intended purpose, even if there are minor defects that don't prevent use.

Common issue: The builder delays issuing practical completion to avoid releasing retention. If your work is genuinely complete and the building is being used or occupied, push back. Practical completion is a factual test, not a document the builder can withhold indefinitely.

Second Half — End of Defects Liability Period

The remaining retention is released at the end of the defects liability period (DLP), usually 12 months after practical completion. During the DLP, you're obligated to return and fix any defects that appear.

Common issue: The builder holds retention past the DLP, claiming there are outstanding defects. If you've rectified all notified defects and the DLP has expired, you're entitled to the remaining retention — full stop.

How to Track Your Retention

Retention tracking is one of those things that sounds simple but gets messy on long projects. Here's what to track:

Every time you receive a payment schedule, check the retention deduction. Common errors include:

• Deducting retention after the cap has been reached
• Calculating retention on the wrong base amount
• Not releasing retention at practical completion
• Claiming defects exist to justify holding retention past the DLP

How to Recover Retention That's Being Wrongly Held

So the DLP has ended, you've fixed all the defects, and the builder still won't release your retention. Here's what to do:

Step 1: Make a Written Demand

Send a formal letter or email demanding release of retention. Reference:

• The contract clause covering retention release
• The practical completion date
• The DLP end date
• Confirmation that all defects have been rectified
• The amount owed

Step 2: Submit a Payment Claim Under SOPA

Retention release can be claimed through a SOPA payment claim. The process is the same as any other payment claim: serve it, wait for the payment schedule, and if the builder doesn't pay, go to adjudication.

Step 3: Apply for Adjudication

If the builder disputes the retention release, an adjudicator can determine whether the conditions for release have been met and order payment. This is faster and cheaper than going to court.

Step 4: Enforce the Decision

If the builder ignores the adjudication decision, you can enforce it as a court judgment. In QLD, if the retention was in a trust account, you may also be able to access it directly through the trustee mechanism.

What Happens to Retention When a Builder Goes Bust?

This is the nightmare scenario — and it's more common than you'd think. A builder goes into liquidation, and suddenly your retention money is gone.

Without Trust Accounts

If there's no trust account requirement (or the builder didn't comply), your retention money is sitting in the builder's general account. When they go insolvent, it becomes part of the pool available to all creditors. As an unsecured creditor, you'll be lucky to get cents on the dollar. This is how subbies have historically lost billions of dollars across Australia.

With Trust Accounts (QLD, and Increasingly Other States)

If your retention is in a statutory trust account, it's protected. The money is held on trust for you, not as part of the builder's assets. When the builder goes into liquidation, the liquidator cannot distribute trust money to general creditors. You get your retention back (subject to any legitimate defect claims).

This is exactly why trust account legislation matters so much. If you're working in QLD on a project over $1 million, confirm that the builder has established a retention trust account. Ask for the account details. It's your right.

Retention Red Flags to Watch For

Here are warning signs that something's not right with your retention:

• Retention deducted past the cap — The builder keeps deducting even after hitting 5% of the total contract value
• No trust account — On a QLD project over $1M, the builder should have a retention trust account. If they don't, that's a compliance issue and a risk to your money
• Practical completion delayed — The builder is using the building but won't issue PC, because that would trigger retention release
• Vague defect claims — The builder says there are "defects" but won't specify what or where. This is often a tactic to justify holding retention
• Builder cashflow problems — If the builder is struggling financially, they may be using your retention to cover their own costs. This is especially dangerous without trust accounts
• Retention not shown on payment schedules — Every payment schedule should clearly show the retention deduction and cumulative total. If it's missing, ask for it

Tips for Protecting Your Retention

1. Know your contract terms — Read the retention clause before you sign. Understand the percentage, cap, and release triggers.
2. Track retention on every claim — Don't rely on the builder's calculations. Keep your own running tally and compare it against the builder's payment schedules.
3. Ask about trust accounts — If you're in a state that requires retention trust accounts, verify compliance. Ask for the trust account details in writing.
4. Push for timely release — Don't let retention sit indefinitely after the DLP. Submit a formal demand and follow up with a SOPA claim if needed.
5. Consider alternatives — Some contracts allow you to provide a bank guarantee or insurance bond instead of cash retention. This can improve your cash flow significantly.

The Big Picture: Why Retention Reform Matters

Across Australia, subcontractors have lost hundreds of millions of dollars in retention money due to builder insolvencies. The industry is slowly reforming — QLD's trust account system is the gold standard, and other states are following. But change is slow, and in the meantime, it's on you to protect your own money.

The first step is visibility. If you don't track your retention, you won't know when it's being over-deducted or when it should have been released. And if you're comparing payment schedules manually, retention errors are easy to miss.

SubbieClaim tracks retention automatically as part of every payment schedule comparison. When you upload the builder's payment schedule, our AI checks retention deductions against your contract terms — the percentage, the cap, and the cumulative total. It flags any over-deductions and reminds you when retention releases are due.