NEC X16 is the route to retention under the full NEC contracts: without it, the Client holds nothing back. The ECSC and ECSS have their own retention rule instead (50.7 in NEC4). With it, a stated percentage of the value above a retention free amount is kept out of each amount due, then halved around Completion and released at the end of the defects stage.
The Option isn't used with Option F. It has two clauses in NEC3 (X16.1 and X16.2) and a third in NEC4, X16.3, which allows a retention bond instead. This page looks at the Option and what goes into the contract. For how it flows through each assessment, read retention under NEC. Other choices are covered in the secondary Options overview.
What you decide at tender stage
| Contract Data entry | What it does | Question to ask |
|---|---|---|
| Retention free amount | Sets the value of work before any retention starts | Does it help the Contractor's early cash flow? |
| Retention percentage | Applies to the excess over the free amount | Does it reflect the real Defect risk on this job? |
| Retention bond (NEC4) | May be allowed by the Contract Data or agreed by the Client's side | Would a bond suit both sides better than cash held back? |
The free amount is a useful feature. A Client that wants a security against late-stage risk may not need money held from the first valuation, and a well-chosen free amount protects the Contractor's cash flow during mobilisation.
A short worked example
Illustrative figures for a fictional Option A contract with a free amount of £500,000 and a percentage of 3%.
| Point in the job | Price for Work Done to Date | Retention held |
|---|---|---|
| Month 3 | £450,000 | Nil, below the free amount |
| Month 9 | £1,200,000 | 3% x £700,000 = £21,000 |
| Just before Completion | £2,000,000 | 3% x £1,500,000 = £45,000 |
| After Completion of the whole | £2,000,000 | Halved to £22,500 |
| After the Defects Certificate stage | £2,000,000 | Nil |
NEC3 and NEC4 differences
- Timing of the halving. NEC3 ECC halves the sum at the assessment on whole-works Completion. The NEC4 subcontract text, as amended in 2019, says the next assessment after Completion.
- Timing of release. NEC3 ties release to the Defects Certificate actually being issued. The amended NEC4 subcontract text ties it to the date the certificate is due. So a late certificate shouldn't delay the money on that wording. Check your own ECC text.
- Retention bond. NEC4's X16.3 lets the Contractor provide a bond from an accepted bank or insurer, using the form the Scope provides. The reason for refusing the provider is that its commercial position isn't strong enough. Once the bond is given, money already retained goes back to the Contractor in the next assessment.
What people get wrong
- Assuming retention applies by default. Without X16, deducting retention isn't justified, even if it's what the parties are used to under other forms.
- Tying the halving to a section. X16 refers to the whole of the works. With Option X5, parties often expect part release as each section finishes, but X16 won't provide that without a Z clause.
- Using it as a substitute for managing Defects. A small sum held by the Client doesn't replace a working process for notifying and correcting Defects.
- Treating it the same as a pay less deduction. Retention is part of the calculation of the amount due. It's not something the Client withholds later by notice. See pay less notices.
- Not carrying the terms into subcontracts. A subcontract has its own X16 with its own entries. Don't assume the main contract's retention applies to a Subcontractor, or that its release dates line up.
How it interacts with X14 and termination
An advance under Option X14 isn't counted in the value of work done, so it doesn't affect the calculation. If the contract is terminated, any retention still held counts in the amount due on termination in the NEC4 subcontract's 93.1, so a Client can't simply keep it as security.
Related guides
- NEC Secondary Options: X, Y, W and Z Clauses Explained
- X17: Low Performance Damages
- X18: Limitation of Liability
- X19: Task Order (NEC3) and Termination by Either Party (NEC4)
- X14: Advanced Payment to the Contractor
- X15: The Contractor's Design
See how this works in practice
Click through Contract Status with sample contracts: raise the notice, reply to it, and watch both sides of one record.
Take the guided tour Book a demo
Take the NEC4 ECC quiz, use the free NEC tools or download free NEC templates.
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.