The UK Retention Deposit Scheme is an independent scheme for the protection of retentions under construction contracts.
We provide segregated bank accounts for construction retentions under standard-form and bespoke construction contracts in England and Wales.
Cash flow is the lifeblood of construction businesses. Unlike many sectors where services are paid for in advance or upon delivery, contractors are usually paid in arrears - after work has been valued, certified, and invoiced. This means that firms often fund labour, materials and overhead for weeks or months before receiving any income.
This dynamic creates a reliance on working capital, which is made even more fragile when a portion of each payment is systematically withheld in the form of a retention. For many businesses, the 5% typically retained may represent the difference between profit and loss on a job. When this money is withheld over long periods - or not paid at all - the effects can be profound.
According to a 2017 study commissioned by BEIS, £3.2–£5.9 billion is held in retention at any one time in the UK construction sector, with an average of £240 million lost annually due to upstream insolvency. In 2023, the Construction Leadership Council highlighted cash flow as a key risk to SME resilience, noting that payment delays - particularly of retentions - can lead to the collapse of otherwise viable firms.
While all contractors experience the impact of retentions, specialist subcontractors are often hit hardest. Typically, subcontractors:
This structure results in a scenario where subcontractors’ retentions may be held for 12–24 months, even after their own scope of work is long finished. The 2002 Trade and Industry Select Committee inquiry found that many subcontractors never see their retention money released at all, either because of main contractor insolvency or lack of enforcement capacity.
The same report found that the practice leads to a "reverse credit" relationship: subcontractors effectively finance the cash flow of clients and Tier 1 contractors, despite having limited bargaining power or recourse.
Even when subcontractors attempt to enforce payment, they are often discouraged by commercial realities. Firms fear being labelled “difficult” or excluded from future tender lists if they pursue outstanding retention aggressively. This creates a culture of silent acceptance, where the cost of enforcement outweighs the benefit - especially on small contracts.
Data from BEIS and subsequent industry surveys paint a stark picture:
These figures are not simply anecdotal: they reflect a structural risk that undermines business models, discourages investment, and in some cases leads to insolvency. In 2020, a Financial Times investigation found that several mid-sized contractors failed directly as a result of retention money being lost in upstream bankruptcies, often where the main contractor had failed to hold the funds separately or ringfence them4.
For construction firms, withheld retentions affect everything from credit terms to recruitment. Specific impacts include:
With cash tied up for extended periods, firms are less able to invest in equipment, staff or expansion. This also increases dependence on overdrafts or invoice financing, which carry interest costs and further reduce margins.
Firms may need to offer longer payment terms to suppliers, who in turn may increase prices or reduce credit limits. This knock-on effect increases the cost of doing business.
Some firms decline to bid for certain projects or work with certain clients due to their known retention practices. Others add a “risk premium” into their pricing, increasing costs across the market.
Retentions often sit as “work in progress” or “unpaid receivables” on balance sheets, reducing the firm’s perceived solvency in the eyes of lenders. This can limit access to funding or increase the cost of borrowing.
In essence, retentions distort commercial behaviour - not just as a payment mechanism but as a structural factor shaping how firms plan and operate.
Alternatives such as performance bonds, retention bonds, or project bank accounts (PBAs) are often presented as more cash-friendly. These mechanisms allow firms to access full payment while still providing clients with performance security.
However, these options carry their own limitations:
While such instruments do avoid tying up cash, they shift the burden into another form - often one that is more complex or less accessible for SMEs. Moreover, clients may still withhold payment informally, regardless of formal contract terms.
Nonetheless, where PBAs or escrow accounts are used (such as on certain public sector frameworks), firms report significantly faster and more reliable payment. These arrangements prevent unauthorised deductions and ensure that payment is not contingent on upstream liquidity.
National Audit Office: Project Bank Accounts Review (2014)
The UK construction industry has one of the highest insolvency rates of any sector. In 2022 alone, 4,280 construction businesses became insolvent in England and Wales - around 18% of all corporate insolvencies, despite representing only 7% of the economy.
While retentions are not the sole cause, they are a contributing factor in many collapses. Firms with narrow margins and constrained cash flow are more vulnerable to delayed payments, client insolvency, or cost inflation. With thousands of pounds tied up in withheld sums - often unrecoverable - the ability to absorb shocks is significantly reduced.
In supply chains that depend on subcontracting, one collapse can have a domino effect, where unpaid retentions trigger further failures downstream. This risk is compounded by the fact that there is no legal requirement to hold retention funds in trust or separate accounts, meaning they can be lost entirely in insolvency.
As a result, the current retention model not only affects individual firms - it introduces systemic fragility into the entire construction sector.
Contractors, trade associations and supply chain advocates have called for a range of reforms aimed at improving cash flow security:
These proposals reflect growing recognition that current practices are incompatible with a modern, resilient and efficient construction industry. They also align with broader efforts to improve productivity, reduce disputes and promote sustainable business growth.
Retentions were introduced to protect clients -but they now expose the supply chain to unnecessary and unmanaged financial risk. For construction firms, the routine withholding of 5% may seem minor on paper - but in practice, it can:
The evidence is clear: in a low-margin industry, any delay or loss of payment can have disproportionate effects. Reforming retentions - whether through ring-fencing, alternative mechanisms, or abolition - is not simply a matter of fairness. It is an essential step toward creating a healthier, more stable construction economy.
The longer the current system persists, the more firms will be forced to carry hidden losses, price in financial risk, or exit the market altogether. In that light, retention reform is not just about payment - it's about survival.
We don't lend, invest or leverage your retentions. We simply hold all deposits in full and unencumbered at the Bank of England, always keeping them fully available on demand.
Retentions are safeguarded and protected from the trading activities of any underlying bank, meaning that even if the worst happens to a bank, or there is a run on its funds, or even if anything happens to us, your retentions are 100% secure.