Banning construction retentions: what the 2026 Commercial Payments Bill means for contractors

If you work in construction, the Commercial Payments Bill could bring one of the biggest changes to contractor cash flow in years. The Bill proposes to ban the deduction and withholding of retention payments under construction contracts, meaning clients and main contractors would no longer be able to hold back a percentage of your money as routine security once the new rules are in force.

The Bill was introduced in the House of Lords on 19 May 2026 and received its second reading on 9 June 2026. It is not law yet, so nothing has changed overnight. This is a preparation window, not a reason to stop chasing money owed under existing contracts.

Retention has been one of the quietest drains on construction cash flow for decades. The pattern is familiar. A percentage of each interim payment is withheld as security against defects, with part released at practical completion and the rest held until the end of the defects liability period. That money has often been earned, but it sits in someone else’s account while you fund the next job.

Why this matters more than it sounds

The scale is significant. House of Commons Library research has previously estimated that around £3.2 billion to £5.9 billion in retention money is held across the construction sector in England over the course of a year. When an upstream contractor fails, retentions can be lost because the money is not usually ring-fenced.

Picture a groundworks subcontractor owed £18,000 in retentions across 2 completed jobs. Half has been released, but the balance is still tied up while materials, wages and plant hire for the next contract need paying now. That is not only a profit problem. It is a cash flow problem, and it can push otherwise viable firms into pressure.

What is actually changing

The Bill would amend the existing construction payment framework and introduce a ban on retention clauses after a transition period. It also sits alongside wider late-payment reforms, including a 60-day payment cap for private sector purchasers, a 30-day cap for public authorities and mandatory late-payment interest at 8% above the Bank of England base rate.

The broader legal backdrop is set out in our guide to UK commercial debt collection laws, and the measures were debated in the House of Lords earlier this month.

The catch worth watching

A ban on retentions does not remove the risk they were meant to cover. It changes how that risk is managed. Clients may ask for performance bonds, retention bonds, parent company guarantees or escrow-style arrangements instead. Those tools can help, but they carry costs and may be harder for smaller firms to secure. It is worth understanding the alternative security options before one appears in a tender pack.

There is also a drafting point to watch. If a fixed deduction is dressed up as something other than a retention, disputes may follow. The final wording, commencement date and any secondary legislation will matter.

What to do before the rules bite

You do not need to wait for Royal Assent to get organised.

Review your live contracts and list every retention currently held, who holds it, the amount, release trigger and expected payment date. Tighten each application for payment, because poor paperwork gives a payer an easy reason to dispute and delay.

Run a credit check on main contractors before signing. The firm holding your money is only as safe as its balance sheet. Where cash is tight while you wait for releases, invoice finance or tailored cash flow solutions may help bridge the gap without taking on the wrong kind of debt.

If a client is already sitting on money you are owed, you have options today. A formal late payment demand letter carries weight, and you may be able to reclaim your statutory interest on overdue sums. We have resolved exactly this kind of contractor dispute before, and where an upstream firm has failed, there may still be routes to recover from an insolvent customer.

Frequently asked questions

What is a retention payment in construction?

It is money held back from sums otherwise payable under a construction contract, usually as security for defects or incomplete work.

When will the retention ban come into force?

There is no final commencement date yet. The Bill is still before Parliament and includes transition arrangements.

What happens to retentions already being held?

The Bill contains transitional rules, but the final position depends on the legislation as enacted and any further regulations.

What can replace retentions?

Clients may use performance bonds, retention bonds, guarantees or escrow-style arrangements, but these need careful review.

The proposed ban is good news for the supply chain, but it rewards contractors who keep paperwork tight and act early on money owed. If a client is holding your cash and you would rather not wait, speak to the team at Taurus Collections about recovering it and protecting your cash flow through the transition.