Jul 27, 2021
If you’ve never had trouble getting undisputed retention out of a builder, you’re either really bloody lucky or you’ve only worked in the industry for a microsecond.
One of the most common reasons people contact me is to recover retentions that should have been ‘automatically’ released at the expiry of the defects liability period.
There are a handful of reasons why this happens. Some of them include:
- The builder isn’t making a single cent more on this job and keeping your retention is propping up his losses on the job.
- The builder is still living in the land of the dinosaurs and thinks he can hold your retention until his retention is released under the head contract.
- The builder simply doesn’t have the money to pay you anymore.
- The builder’s cashflow is poor, and he’s using held retentions to float his overheads.
In a number of states in Australia builders are now required to hold your retention in a special purpose trust account to stop them from playing these silly games. But if they have a half decent claim to use your retention (for example, to rectify your defects) that money will inevitably end up in his hands if he utilizes his contract properly.
Do these three things to stop this from happening on your jobs:
1. Review your builder’s contract before you sign it, and amend any terms that might hoodwink you of you retention
These are the common nooses:
- Definition of practical completion. What needs to happen for you to ‘trigger’ PC under the Contract? If there is something in that definition that is not part of your trade work (such as providing as-built drawings) you need to cross it out.
- The definition of defects liability period. If the defects liability period is defined to be that of the defects liability period under the head contract, change it to be “12 months after the date of Practical Completion” or “Substantial Completion”, whichever term is used to define you completing your trade work under the subcontract.
*Also keep an eye out for excessively long defects liability periods. We have seen DLP’s listed in contracts for as long as 36 months, but when the corresponding head contract was reviewed, the builder was only required to serve a standard 12 month DLP.
- Termination for convenience. It’s not clause itself that will rob you of your retention, but take note of what you’re entitled to be paid if the builder kicks you off the job using this clause. If “release of all retentions accrued and held by the contractor under the subcontract, even if such retentions are not otherwise due and payable under the subcontract” is not on that list, add it in.
- Timeframe in the contract for you to rectify defects after you are giving a direction to rectify. If this timeframe is too short for you to practicably mobilise to site and carry out even the most minor of defects, you need to amend this timeframe right now at the review stage.
**Side note, we have seen some builders start to use provisions in their contracts that require the Subcontractor to pay the Builder the full amount of retention anticipated to be held (based on the contract sum) within 5 days after contract signing. In some states this term is likely to be held void, but you don’t want to have to pay for the process of having somebody decide it is void.
2. Administer your contract properly, at all the right times
This means giving notices of delay and claiming the respective extensions of time. You will lose retention by virtue of simple mathematics if your cumulative overall contract value certified takes a big ginormous dive – for example, if you get stung with liquidated damages at the end of the job.
The other one to keep an eye out for is any requirement for you to give a written notice that you anticipate you are about to reach practical completion. Each contract might be different – so this is one to take note of when you do your internal contract review and diarize a calendar reminder at that point mentioning the clause and the deadline to give the notice.
3. Rectify your defects as soon as you become aware of them
One of the fastest ways to lose your retention is to mismanage defects. As mentioned above, if your contract only gives you 2 business days to rectify a defect, but you know that your lead time on parts is typically a week, the builder could have a contractual right to engage others to rectify work on your behalf.
4. Claim your retention on time, and take fast action if it is not paid
In most states in this country you have a very short window in which to claim your retention after the expiry of the defects liability period. If you miss the window you will be time barred and you’ll have missed the fastest and easiest boat to chasing your retention from pirates.
Here are the common mistakes the average subbie makes when it comes to their retention claims:
- They don’t claim their retention with their practical completion claim. It is very likely that your practical completion reference date is the last one you’ll get until the expiry of the defects liability period. If you don’t claim your retention on or after you achieve practical completion, you will have already used up your reference date.
- Not identifying the work that was carried out on their retention payment claim. A claim for retention still needs to be a valid claim, and in every state and territory in this country you need to identify the work that was done in connection with the claimed amount. Another good reason to include your retention with your practical completion claim.
- They don’t know how much to claim, so they delay claiming until their builder tells them how much they are owed. If you are that loose with tracking your aged receivables we have bigger problems to discuss. Retention management in accounting software is a learned trade in itself, but when you nail it, it will pay you dividends with data intelligence.
- They think they have to write a love letter to their builder while standing on one leg wearing their grandmother’s hat in order to have retention released. I’ve yet to ever see a builder’s contract that requires a special letter be written so that you can have your retention released. These are just schoolyard games being played on you by a bully builder.
If you retention wars are the bane of your existence, and you want to take back control of your money, check out the Subbies’ Toolbox on my website. I guarantee you that you will recover the upfront investment on your toolbox again and again, job after job just by implementing the retentions management section of the toolbox.