Key Takeaways
- Retention money is deducted from your progress payments as security for defective or incomplete work, usually at 10 percent of each claim capped at 5 percent of the contract sum
- Your contract releases retention in two stages, with the withheld total generally reducing at Practical Completion and the balance falling due when the Defects Liability Period ends and notified defects are rectified
- In Queensland, the combined retention and security cannot exceed 5 percent of the contract price before Practical Completion or 2.5 percent after it
- On Queensland projects where a Project Trust applies, your cash retention must be held in a retention trust account, and you can verify the account on the public QBCC Trust Account Register
Retention Money Explained
The Principal withholds retention from the Contractor’s progress payments, and the Contractor withholds retention from each Subcontractor’s progress payments in turn, so the same money is being held at every level of the chain at once. The holder keeps it as security in case your work turns out to be defective or incomplete, and it also preserves your right to come back and rectify your own defects at your own cost rather than being backcharged another contractor’s price for the same work.
Retention only becomes a problem when the amount withheld exceeds what the contract or the law allows, or when it stays held after your entitlement to release has arisen.
Retention Money Sits Alongside Other Security
Most commercial contracts let the holder take bank guarantees or insurance bonds as performance security and deduct cash retention from your progress payments as well. Holding several forms of security gives the holder no extra rights over your cash, because the requirements for using and releasing every dollar and every instrument are stated in the contract.
The rules for bank guarantees and insurance bonds, including calls on security and how to respond to one, are covered on our Security in Construction Contracts page.
Limits on the Retention Money That Can Be Held
Commercial practice across Australia settles around 10 percent of each progress claim until 5 percent of the contract sum is reached, and everything about the rate and the cap is negotiable before you sign. Queensland turns the commercial practice into law for building contracts under ss 67K to 67N, QBCC Act, with retention and security combined limited to 5 percent of the contract price before Practical Completion, reducing to 2.5 percent after it, and no more than 10 percent of any single progress payment withheld as cash retention.
If the amount being held on your Queensland contract exceeds the caps, the excess is being withheld unlawfully, and that becomes a powerful lever in any release conversation.
Retention Money Is Released in Two Stages
Most contracts release the first half of the retention when Practical Completion is certified and the balance when the Defects Liability Period ends and notified defects have been rectified, while some hold the final release until the Final Certificate issues. AS 4000:2025 clause 5.4 shows the mechanics at their tightest, with the entitlement to security reducing on the issue of the Certificate of Practical Completion, the reduction released and returned within 14 days, and the remaining entitlement ceasing 14 days after the Final Certificate.
Watch for an Evergreen DLP, being a clause that starts a fresh Defects Liability Period for rectified work from the date of rectification, because where the contract also ties final release to Final Completion, rolling rectification periods keep pushing your release date out. In Queensland, if the contract is silent or unclear on when retention is released, a default Defects Liability Period of 12 months from Practical Completion applies under s 67NA, QBCC Act.
Swapping Cash Retention for a Bank Guarantee
Many contracts let you substitute a bank guarantee or insurance bond for the cash retention at any time, and the swap at Practical Completion is one of the most underused cash flow moves in the industry. The holder stays fully secured, and the withheld cash comes back into your business months or years before the Defects Liability Period runs its course.
Check the substitution clause before you rely on it, because amended contracts often narrow the right or attach conditions, and price the facility cost of the guarantee against the value of having your cash back.
Managing Retention Money Through the Project
The easiest retention to recover is the retention you managed from day one. Negotiate the rate, the cap, the release triggers and a substitution right before you sign, because no holder improves your position afterwards. Price the cash flow effect before you commit, and if your margin on the job is under 10 percent, plan how you will fund the gap while the retention exceeds your margin.
Record retentions in your accounting system separately from your trade debtors so overdue debtors and retention not yet due never blur into one number. Notify Practical Completion of your Works in writing as soon as you reach it, diarise both release dates, and write to the holder before each date falls due rather than waiting to see whether they pay.
On Queensland projects where a Project Trust applies, search the QBCC Trust Account Register about a month into the Subcontract to confirm the retention trust account is registered, and check again around six months in that your withheld retention is flowing through the trustee’s payment advices. Apply the same rules to the retention you hold on your own Subcontractors, because a release you cannot fund downstream becomes your dispute.
Talk to your accountant about how retention interacts with income tax and GST timing under your accounting method, because the tax point and the cash point are not always the same.
Retention Trust Accounts
On Queensland projects where a Project Trust applies, the holder must keep your cash retention in a retention trust account until it falls due for release, must notify you of the account, and must give you payment advices for deposits and withdrawals. The holder must also notify you of the end of the Defects Liability Period within 10 business days before it ends using the approved QBCC form, which is your prompt to serve the final payment claim, and you can request trust transaction information from the trustee at any time using the QBCC template.
The QBCC’s online trust account tool tells you whether an account is required on your contract, and the public QBCC Trust Account Register lets you confirm the account exists. New South Wales requires head contractors to hold retention in trust for projects worth over $20 million, and Western Australia phased in its own retention trust scheme under the 2023 reforms, so check the rules for the state your Project sits in.
Retention Money and Insolvency
Retention held in a compliant trust account is protected if the holder becomes insolvent, because trust money does not form part of the insolvent estate, but the window for a trust claim after an insolvency event is short. If your trust notices stop arriving, payments start slowing, or a winding up application or external administration appointment appears on ASIC’s published notices website, take advice immediately rather than waiting for the Defects Liability Period to run its course.
Where no trust account was kept when one was required, your claim does not disappear, but the forum and the strategy change, and speed matters even more.
Retention Money Not Released
Once the contract says your retention is due and the holder still sits on it, the recovery path runs through the contract triggers first and the Security of Payment Act second, with strict time limits that can close the statutory path if you wait. Our step-by-step guide on how to get retention money released takes you through the whole sequence, from proving your entitlement through to serving the payment claim, and our Retention Release Checker works out both of your release dates from your own contract terms.
One Contractor client knew before signing that their cash flow would be tight in the closing months of the Project, right when the retention would still be locked up. So we negotiated the release mechanism at tender stage, and instead of the Principal holding the full amount through the Defects Liability Period, the retention reduced progressively by reference to the value of the defects and omissions still outstanding.
The Principal stayed fully secured against the work that remained, and my client recovered most of their cash months earlier than the standard clause would have allowed. That mechanism only exists because we asked for it before signing, because no Principal hands it to you afterwards.
How Rachelle Helps to Protect Your Retention Money and Cash Flow
Rachelle reviews the retention, security, defects and release provisions as part of every Construction Contract Review, negotiates the rate, the cap, the triggers and substitution rights at tender stage, and advises on the fastest path when a release has stalled. Every engagement runs on a Fixed-Price Quote, so you know the cost before you commit. Tell Rachelle what is being held, by whom and under what clause, and she will tell you whether to rectify, demand or claim.
FAQs about Retention Money
Standard commercial practice withholds 10 percent of each progress claim until the total reaches 5 percent of the contract sum. In Queensland those figures are also the legal maximums under ss 67K to 67N, QBCC Act, with the combined total dropping to 2.5 percent of the contract price after Practical Completion.
Your contract sets the two release dates, with the first half generally falling due when Practical Completion is certified and the balance when the Defects Liability Period ends and notified defects are rectified. Under AS 4000:2025 the Practical Completion reduction must be released within 14 days of the certificate.
Most contracts include a substitution clause letting you exchange cash retention for a bank guarantee or insurance bond, and AS 4000:2025 clause 5.3 allows the swap at any time. Check the clause in your contract first, because amendments often narrow the right or attach conditions.
On Queensland projects where a Project Trust applies, cash retention must be held in a retention trust account under the BIF Act until release falls due. New South Wales requires trust protection on projects over $20 million, Western Australia runs its own scheme under the 2023 reforms, and AS 4000:2025 clause 5.5 separately requires cash security to be held in trust for the party providing it.
In Queensland the party holding retention after Practical Completion must notify you within 10 business days before the Defects Liability Period ends, using the approved form under s 67NC, QBCC Act. Treat that notice as your prompt to serve the final payment claim before the statutory window closes.
Under AS 4000:2025 clause 5.5, cash security and the interest earned on it are held in trust for the party providing them, while interest on security not required to be held in trust belongs to the holder. Your contract’s own wording governs, so check the trust and interest provisions before assuming either position.
The Queensland and New South Wales Acts expressly allow retention to be claimed in a payment claim, and the Victorian Court of Appeal confirmed the same position in 2024. Our guide on how to get retention money released walks through the timing rules that apply.
Part 4A, QBCC Act regulates retention on commercial building contracts and on subcontracts, including subcontracts for residential projects, while contracts between a builder and a resident home owner sit under the domestic building rules instead. Subcontractors on housing projects therefore get the benefit of the Queensland caps and release rules.
Retention held in a compliant retention trust account is protected, because trust money does not form part of the insolvent estate, but the claim window after an insolvency event is short. Where no trust account was kept, you generally rank as an unsecured claimant, so take advice the moment you see signs of financial trouble.
In Queensland the holder must first give written notice of the proposed use and the amount owed under s 67J, QBCC Act before applying your retention to an amount owed, and withdrawals from a retention trust account are restricted to tightly defined purposes. Most contracts also require the defect to be notified to you first, so you can rectify it yourself at your own cost.
Keep Your Retention Money Moving
The retention clause you sign determines how much of your margin sits in someone else’s account and for how long. Have Rachelle read it before you sign, and if your retention is already overdue, start with the release guide and the Retention Release Checker, then call.
