Under the full NEC contracts, retention only applies if Option X16 is in the contract. The ECSC and ECSS have their own rule (50.7 in NEC4). Once the Price for Work Done to Date passes the retention free amount, a stated percentage of the excess is held back from each amount due, halved at Completion or take over, and released after the Defects Certificate stage.
X16 isn't used with Option F. This guide takes you through the money. For the Option itself, see Option X16, and for the way retention fits into each assessment, see the NEC payment and Defined Cost guide.
The rules
| Clause | Rule | NEC3 and NEC4 differences |
|---|---|---|
| X16.1 | Retention is the stated percentage of whatever the Price for Work Done to Date exceeds the free amount by, up to Completion or take over of the whole of the works | Same |
| X16.2 | The amount is halved, then released | NEC3: halved in the assessment at Completion, released after the Defects Certificate is issued. NEC4 subcontract text as amended in 2019: halved in the next assessment after Completion, released once the Defects Certificate's due date has passed |
| X16.3 | A retention bond can replace it | NEC4 only |
The word "due" in that NEC4 text matters: if the Defects Certificate runs late, the release shouldn't follow it. Check the current wording in your own ECC, because NEC has issued amendments.
Both figures, the free amount and the percentage, are in the Contract Data. A free amount of nil is possible, which means retention starts from the first pound.
Worked example
A fictional NEC4 Option A contract, with an illustrative free amount of £500,000 and retention of 3%.
| Stage | Price for Work Done to Date | Calculation | Retention held |
|---|---|---|---|
| Month 3 | £450,000 | Below the free amount | £0 |
| Month 8 | £1,500,000 | 3% × £1,000,000 | £30,000 |
| Just before Completion | £2,400,000 | 3% × £1,900,000 | £57,000 |
| First assessment after Completion | £2,400,000 | Half of £57,000 | £28,500 |
| First assessment after the Defects Certificate stage | £2,400,000 | Released | £0 |
Retention is cumulative, like the rest of the amount due. There isn't a retained sum to pay out as a separate transaction. It simply stops appearing as a deduction, so the change in the amount due produces the payment.
Take over before Completion
If the Client takes over the whole of the works before Completion, that replaces Completion as the trigger: the amount is halved in the next assessment. X16 doesn't reduce retention for taking over a part of the works. Adding Option X5 doesn't change that, because X16 refers to the whole of the works, so part release as each section finishes needs a Z clause.
Retention bonds in NEC4
Under X16.3, if the data allows it or the paying side agrees, the supplier may give a retention bond from an accepted bank or insurer for the total to be retained, using the form the Scope sets out. Anything already retained gets paid in the next assessment. A bank or insurer may be rejected if its commercial position isn't strong enough. Bonds cost money, so compare the premium with the value of having the cash now. The X16.3 route isn't in NEC3.
Subcontract retention
A subcontract can have its own X16 with different figures. On Options C, D and E, a Contractor's retention from its Subcontractor shouldn't reduce Defined Cost. See Subcontractors and Defined Cost. Think about the dates too. A subcontract's final release may come well after its own work finished, so a groundworks Subcontractor could wait a long time.
What people get wrong
- Confusing it with the first programme hold. A quarter held back under clause 50.5 has nothing to do with X16, and it stops as soon as a compliant programme is in.
- Assuming retention is held in a separate account. X16 doesn't require that. The amount stays with the Client. If the Client becomes insolvent, it's generally just a debt. Parties wanting better protection should consider a Z clause. NEC and the Construction Leadership Council have published guidance on retention, which is worth reading.
- Applying the percentage to the whole value. Only the excess above the free amount counts.
- Not checking the release. Look for it in the assessment that follows the trigger. A forgotten deduction can sit in a template for months. See common payment mistakes.
- Forgetting the certificate is still the notified sum. Retention shown correctly on the certificate needs no pay less notice, as it's already part of the amount due.
Related guides
- NEC Payment and Defined Cost: The Complete Guide
- Delay Damages
- Common NEC Payment Mistakes
- Payment for NEC Subcontractors
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This guide is general information in our own words, not legal advice. Your contract and its Contract Data always govern. NEC, NEC3 and NEC4 are trade marks of Thomas Telford Ltd; Contract Status is not affiliated with or endorsed by NEC.