The Construction Retentions Ban: What Subcontractors Should Do Before The Law Lands

The ban on construction retentions is now moving through Parliament as part of the Small Business Protections Bill, formally known as the Commercial Payments Bill. For subcontractors who have spent years waiting for money they have already earned, this is a major change. But it is not yet fully in force, and the transition will matter.

The Bill was introduced in the House of Lords on 19 May 2026. It is designed to tackle late payment, cap payment terms, make statutory interest mandatory, strengthen the Small Business Commissioner and prohibit the deduction and withholding of retention sums under construction contracts.

For subcontractors, the message is simple: do not wait for the ban before acting. Existing retentions still need to be tracked, chased and recovered under the current contract terms. New contracts signed during the transition also need careful review, because the practical effect of the ban will depend on the final legislation, commencement rules and how the industry replaces retentions.

Why the retentions ban has finally arrived

Construction retentions have long been criticised because they push cash flow risk down the supply chain. Retention is usually a percentage of the contract sum, commonly around 3% to 5%, withheld from interim payments. Half is often released at practical completion, with the balance held until the end of the defects period.

For subcontractors, that can mean waiting many months, sometimes longer, for money that has already been earned. The risk becomes severe when a main contractor or employer becomes insolvent before the retention is released.

The collapse of Carillion in 2018 remains the best-known example. It highlighted how subcontractors could be left as unsecured creditors for retained sums and other unpaid balances. The government’s 2025 late payment consultation also identified retention practices as a barrier to cash flow, investment and stability in the construction supply chain.

The consultation ran from 31 July to 23 October 2025 and received 867 responses, including 238 from the construction sector. A significant majority supported reform. The government chose to take forward a prohibition on the deduction and withholding of retention payments, while recognising that further consultation and guidance will be needed on implementation.

What the Bill means in practice

The Bill proposes to amend the construction payment framework so that retention clauses are phased out. As drafted, it includes a transition period, meaning the ban will not switch on overnight for every contract.

The detail may still change as the Bill passes through Parliament, but the current direction is clear. New retention clauses will eventually become void. Transitional retention clauses may be allowed for a limited period, and a final date will be set after which transitional retained sums must be released.

That means subcontractors need to watch 3 things closely:

• When the relevant provisions come into force
• Whether their contract is treated as pre-existing, transitional or post-ban
• Whether any replacement mechanism has the same commercial effect as a retention

The government has also said it will consult further on timing and implementation. Until that detail is final, subcontractors should avoid assuming that all existing retention money will be automatically released on day one.

What might replace retentions

The ban removes the retention mechanism, but it does not remove the commercial concern behind it. Employers and main contractors still want protection against incomplete work, poor performance and defects.

Likely alternatives include:

This is where subcontractors need to be careful. A contract may not call something a retention, but it may still defer payment, tighten valuations or hold back cash in a way that creates a similar economic effect.

Reading about security options beyond personal guarantees is worth your time as payment security develops in the post-retentions landscape.

What subcontractors should do now

1. Audit every retention currently owed to you

Start with a full retention ledger. For each project, record:

• Contract name and parties
• Contract value
• Retention percentage
• Total amount withheld
• Practical completion date
• Defects liability period end date
• Release trigger
• Amount already certified
• Amount overdue
• Any defects or dispute raised

This is not just bookkeeping. It is the foundation of your recovery strategy. Aged debtors reporting that drives action should include retentions as well as ordinary invoices.

2. Chase existing retentions now

The proposed ban does not automatically recover money already owed under existing contracts. If a retention is due for release and has not been paid, treat it as a debt.

Check the contract. Confirm the release trigger. Ask whether a valid reason has been given for withholding. If the sum is overdue, issue a formal demand and include statutory interest where appropriate.

You may be able to reclaim late payment interest at 8% above the Bank of England base rate, plus fixed compensation, where the debt falls within the late payment regime.

If you have not already reviewed 5 ways to get your customers to pay on time, the same principles apply to retention releases.

3. Understand your rights under the Construction Act

The Housing Grants, Construction and Regeneration Act 1996 gives construction businesses important payment protections. If a payer wants to pay less than the notified sum, it must usually issue a valid pay less notice within the required time.

That matters for retentions. If a retention release has become due and the payer has not followed the contractual and statutory process properly, your position may be stronger than the other side suggests.

Contested debt collection in construction needs careful handling because payment notices, pay less notices, adjudication and late payment interest can all interact. Where the issue is genuinely about defects, the step-by-step disputed invoices resolution process can help keep the matter structured rather than open-ended.

4. Act quickly if a contractor shows financial distress

The key risk with retentions is insolvency. Until the ban and any replacement protections are fully in force, money held upstream is still exposed.

Run Companies House checks for credit control not only before you take a job, but during long projects. Look for late accounts, overdue confirmation statements, charges, director changes, strike-off notices, administration filings and other warning signs.

If a contractor has already entered formal insolvency, take advice quickly. Review statutory demand insolvency options and submit any proof of debt promptly. Recovering debt from insolvent customers explains the practical options once formal proceedings begin.

5. Issue formal demands where money is overdue

Many subcontractors hesitate before escalating retention claims because they do not want to damage future relationships. That is understandable, but indefinite informal chasing rarely improves your position.

A clear letter before action debt demand sets out the contract, the release trigger, the sum due, any interest and compensation, and the deadline for payment. It also creates a paper trail if adjudication or court action becomes necessary.

Where correspondence is being ignored and the sum is material, a pre legal debt collection field visit may change the tone. Knowing when to escalate an invoice to debt collection services helps you act before the debtor’s position worsens.

6. Review new contracts carefully

The next 2 to 3 years are likely to be messy. Standard forms, amendments and bespoke subcontracts will all need to adapt.

Subcontractors should look carefully for clauses that:

• Delay payment until final completion of a wider project
• Make payment dependent on excessive evidence requirements
• Allow broad set-off against unrelated claims
• Introduce performance security without reflecting the cost in the price
• Shift defect risk beyond what is commercially fair
• Create staged payments that are too heavily weighted towards the end

Understanding contract clauses that reduce late payment will be just as important after the retentions ban as before it.

7. Understand bonds and guarantees before you are asked for them

If performance bonds, retention bonds or guarantees become more common, subcontractors need to understand the cost before tendering.

A performance bond is not free. The premium depends on the bond value, the risk, the subcontractor’s financial position and the bond provider’s appetite. Smaller subcontractors may struggle to obtain bonds on acceptable terms, especially if they have limited balance sheet strength.

The same applies to guarantees. Personal guarantees and how to use, document and enforce them is a related area of knowledge that becomes more relevant when contract security changes.

Managing cash flow during the transition

The period before the ban fully takes effect is a cash flow risk in its own right. Some contractors may delay releases under existing contracts. Others may introduce tighter new payment structures.

If retained money is creating working capital pressure, invoice discounting may help release cash against certified sums. A cashflow finance service can also help you plan across multiple projects rather than reacting one contract at a time.

Where a retention has become genuinely irrecoverable, check whether bad debt relief on VAT is available. If late payments and retentions are taking too much internal time, outsourced credit control services can bring structure to the whole ledger.

Working with a professional commercial collection agency with construction sector experience can support recovery from early formal demand through to disputed debt handling and insolvency-related recovery.

FAQs

When will the retentions ban come into force?

The Bill is still progressing through Parliament. As drafted, it includes transition arrangements, but the final commencement date and implementation guidance will need to be confirmed. Subcontractors should monitor government and industry guidance as the Bill progresses.

Will the ban apply to retentions already being withheld?

That depends on the final transitional provisions. Existing contracts may continue to be governed by their current terms for a period, while new or varied retention clauses may be restricted after the transition. Do not assume existing retentions will be automatically released immediately.

Can a main contractor replace retention with something similar?

This is a key risk. The Bill is intended to stop the withholding of retention payments, but alternative mechanisms may be used to manage performance and defect risk. Subcontractors should take advice on any clause that defers payment or creates a similar financial effect.

What if my main contractor refuses to release a retention that is due?

A due retention that has not been paid can be pursued as a commercial debt. You may be able to issue a formal demand, claim statutory interest, use adjudication or take legal action depending on the contract and circumstances.

Will performance bonds cost money?

Yes. Bonds are provided by insurers or banks and usually carry a premium. The cost should be factored into tender pricing if bonds become a replacement for retentions.

What happens if the main contractor becomes insolvent before the ban applies?

Unless the money is protected, your retention is likely to rank as an unsecured debt. Recovery will depend on the insolvency process and available assets. Acting quickly when financial warning signs appear is the best way to protect your position.

Do not wait for the law to recover what you are already owed

The retentions ban is important legislation for UK construction, but it is not a recovery strategy for money already sitting in someone else’s account. Existing overdue retentions still need active, professional recovery action.

If you have overdue retentions, disputed valuations or a main contractor showing signs of financial distress, Taurus Collections is a debt recovery service with experience in construction payment disputes, retention recovery, formal demand letters and insolvency-related recovery across the supply chain.

Get in touch today to discuss what steps can be taken to recover what you are owed before the post-retentions landscape changes the picture.