New Guidance on Retentions Payments under NEC Contracts

NEW GUIDANCE to industry on the use of retention clauses under NEC3 and NEC4 Engineering and Construct Contracts (ECC) and subcontracts is published by the Construction Leadership Council (CLC) in collaboration with NEC.

The publication explains how NEC contract suites deal with defective work and retentions, and to explain that a retention fund may not, in fact, be needed.

Retentions Payments under NEC Contracts

The contractual practice of retention payments is intended to provide security against defective work, and the insolvency of businesses in the construction supply chain. The principle is to secure performance and incentivise the elimination of defects in an industry where the quality of work remains inconsistent. However, they can create problems for businesses throughout the supply chain due to the late and non-payment of retentions or through upstream insolvency.

Zero Retentions by 2025

This work forms part of the CLC ambition of moving to zero retentions by 2025, through reducing or eliminating defective construction work and having a procurement and delivery model that recognises, incentivises and rewards consistent high-quality work.

Steve Bratt, Chair of the CLC’s Business Models Workstream, said: “The long-term aim is to eliminate the need for retentions altogether. This guidance illustrates that often the need for retentions can be avoided through good contract management and selection of contractors with a good track record of quality work.”

“I would like to thank the NEC Board for their collaborative approach to working with CLC colleagues on this longstanding, contractual issue.”

Peter Higgins, Chairman of the NEC4 Contract Board, added: “The construction industry has traditionally thought of a retention fund as a necessary and inevitable part of the cost of doing business, but NEC contracts took a different approach, treating retentions as an option to be used only if necessary. NEC is pleased to have worked with the Construction Leadership Council in preparing this guidance on the use of retentions under NEC contracts, and in particular highlighting when holding a retention fund creates an unnecessary expense for contracting parties.”

Download the guidance here.

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