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.
Retentions - where a proportion of payments is withheld to secure performance and rectify defects - have been a standard feature of UK construction contracts since the Victorian era. However, from the 1960s onwards, successive reviews and reform attempts have questioned their necessity and fairness. The core concerns have remained broadly consistent:
- Retentions adversely affect cash flow, particularly for smaller firms.
- Funds are often held for longer than necessary, or not released at all.
- Insolvency of the party holding the retention often results in permanent loss.
- The mechanism creates distrust and adversarial relationships within the supply chain.
Each of these concerns has prompted governments to explore reforms through public consultations, working groups, industry surveys, and select committee inquiries. While these efforts have produced a clear and consistent body of evidence highlighting the drawbacks of retentions, reaching a political or industry consensus on how to replace them has proved far more difficult.
The first major government-backed call for reform came in the Banwell Report (1964), which reviewed construction procurement practices and recommended the abolition of retentions. Banwell’s conclusion was that they were outdated, economically damaging and inconsistent with modern collaborative contracting. Despite this recommendation, retentions remained common.
Three decades later, the Latham Report (1994) revived the debate. In Constructing the Team, Sir Michael Latham criticised the blanket use of cash retentions and recommended that they be replaced with alternative forms of security, such as retention bonds. Latham also warned that retentions created a cash flow burden for subcontractors and contributed to adversarial contractual relationships. His report laid the groundwork for the Housing Grants, Construction and Regeneration Act 1996, but that legislation did not abolish retentions - it merely regulated how they could be used, particularly in terms of payment notice requirements and the right to adjudicate.
The Egan Report (1998) (Rethinking Construction) continued the push for reform, calling for collaborative practices and the elimination of unnecessary financial mechanisms that bred mistrust. The clear trajectory of these reports was toward moving away from retentions - but none resulted in statutory change. Instead, they relied on industry-led change, which proved to be slow and inconsistent.
In response to persistent concerns, Parliament’s Trade and Industry Select Committee conducted a detailed inquiry into the use of retentions in the UK construction industry in 2002. The committee heard evidence from trade bodies, contractors, government departments and clients.
Its final report concluded that retentions had a disproportionately negative impact on small and specialist subcontractors, many of whom were in a weaker negotiating position. Key findings included:
- Retentions were often held long after defects were remedied, or even after no defects were reported at all.
- The practice encouraged risk-averse and sometimes unfair behaviour by clients and main contractors.
- There was no clear evidence that retentions improved quality or reduced defects.
Alternatives such as performance bonds and parent company guarantees were already in use and could be expanded.
Despite these observations, the committee stopped short of recommending an outright ban. Instead, it encouraged the industry to adopt voluntary measures - such as contractual limits on retention periods and greater transparency. It also noted that abolition would require safeguards for clients and public sector bodies, which were not yet universally available.
The government’s response welcomed the report but declined to legislate at the time, preferring to monitor progress through voluntary codes of practice such as the Fair Payment Charter.
Read the 2002 Select Committee Report on Retentions
Following the collapse of Carillion in 2018, which exposed subcontractors to substantial retention losses, momentum for reform surged. In response to growing industry concern, the Department for Business, Energy and Industrial Strategy (BEIS) launched a consultation on retention payments in the construction industry in 2017. The consultation paper examined:
- The scale of the issue (an estimated £3.2–£5.9 billion held in retentions at any given time).
- The frequency and impact of non-payment of retentions.
- The potential for alternatives, such as trust accounts or retention bonds.
- Options for statutory reform.
The BEIS consultation received over 200 responses, largely from trade bodies, contractors, and clients. The majority supported reform. A substantial proportion of respondents expressed concern about the use of retentions as a matter of routine, and the lack of protection in insolvency scenarios.
However, some larger clients and contractors expressed caution about abolishing retentions without reliable substitutes. A central theme of the consultation was the need to protect retention monies, either through ring-fencing or trust accounts.
BEIS published a summary of responses in 2020, but no legislative action followed. The department stated that it would “continue to work with industry to gather further evidence.”
Read the BEIS Consultation Summary (2020)
Industry opinion on retentions has remained broadly in favour of reform. Organisations such as:
- The Specialist Engineering Contractors' (SEC) Group
- The Electrical Contractors’ Association (ECA)
- The Federation of Master Builders (FMB)
- Build UK
have called for legislative change or the introduction of statutory retention deposit schemes. These would require retention monies to be held in ring-fenced accounts, protected from misuse or insolvency.
The Build UK Roadmap to Zero Retentions (published in 2019) committed member contractors to eliminating retentions by 2025. It proposed:
- Greater use of project bank accounts.
- Clearer contractual payment terms.
- Education of clients about alternatives.
However, as of 2025, retentions remain common - even on public sector projects. Progress has been uneven, with some large contractors and clients embracing alternative models, while others continue to rely on cash retentions without protection.
Read the Build UK Roadmap to Zero Retentions
Despite decades of consultation and analysis, retention reform has remained stalled for several key reasons:
- Lack of consensus: While many contractors and trade bodies support reform, some clients (particularly in the public sector) are wary of removing what they perceive as a simple and effective safeguard.
- Absence of statutory protection: Alternatives such as retention bonds, escrow arrangements or insurance guarantees all come with costs and technical conditions. There is also no single agreed mechanism for ring-fencing retention funds that applies across all contract types.
- Voluntary nature of reforms: Government reviews have repeatedly relied on industry self-regulation, codes of conduct and best practice guidance. These tools are not binding and cannot prevent poor payment practices in weaker parts of the supply chain.
- Legislative inertia: Parliamentary time has been dominated by other priorities (such as Brexit and COVID-19), leaving Private Members’ Bills on retentions with limited traction.
- Economic caution: During uncertain market conditions, clients and Tier 1 contractors have been reluctant to give up mechanisms that preserve cash and provide leverage - even if doing so could improve long-term industry resilience.
In short, reform has been widely discussed but politically difficult. Abolishing or replacing retentions requires both a credible alternative and the political will to legislate. Without both, change has remained incremental at best.
There are signs that the policy environment is evolving. The experience of contractor insolvencies (particularly Carillion and ISG) and the rise of project bank accounts have kept retentions in the spotlight. Key developments include:
- The Construction (Retention Deposit Schemes) Bill (2017–2019), also known as the “Aldous Bill,” which sought to mandate that all retentions be held in ring-fenced deposit schemes. The bill had cross-party support but did not reach second reading.
- The Construction (Retentions Abolition) Bill introduced in the House of Lords in 2021, which proposed abolishing retentions outright.
Ongoing calls for reform from industry groups, particularly in response to rising insolvency rates and payment uncertainty during economic downturns.
These developments suggest that reform is still on the political radar - though meaningful change continues to depend on legislative opportunity and industry alignment.
Policymakers, clients and contractors face a complex set of trade-offs:
- Abolishing retentions outright may address unfair payment practices but would remove a familiar (if flawed) form of security.
- Ring-fencing or trust mechanisms offer a compromise, preserving the tool while mitigating its worst effects—but require robust oversight and enforcement.
- Voluntary alternatives (such as retention bonds or performance guarantees) are viable but not universally accessible, particularly for smaller firms.
Ultimately, the UK’s long series of consultations and debates reflects a cautious but persistent shift away from unsecured retentions. The challenge now is to move beyond consultation to implementation. A statutory retention deposit scheme, if properly designed, could offer a balanced solution - ensuring that retention funds are protected without unduly increasing costs or complexity.
Over more than 60 years, UK governments have commissioned reports, launched consultations, and supported voluntary reform efforts around retentions in construction. While these efforts have produced a clear understanding of the problems, they have not yet resulted in systemic change.
The history of these debates shows that:
- There is broad consensus that retentions harm cash flow and subcontractor resilience.
- Industry is willing to move towards alternatives—but wants clarity, consistency and fairness.
- Reform is likely to succeed only if underpinned by statute.
As the industry looks ahead, the accumulated weight of evidence from consultations and parliamentary reviews provides a strong foundation for legislative change. Whether through ring-fencing, deposit schemes or new forms of security, the case for reform has been made. What remains is the political and institutional will to act.
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.