Proposals · Glossary

What is retention money?

Retention money is a portion of each progress payment that a principal or head contractor holds back under a construction contract as security against defects or unfinished work. It is usually a small percentage of the contract value, and it is released in stages, commonly part at practical completion and the rest when the defects liability period ends.

For subcontractors, retention is often the last money on a job and the hardest to collect. The rules about how much can be held and when it must be released differ by state, and Queensland now regulates it closely.

Indunil Asanka · Co-founder

4 min read · Published 21 October 2026

Retention money, bank guarantee and performance bond compared
Security	How it is provided	When it is released	Who bears the cost
Cash retention	Deducted from each progress payment and held by the payer	In stages, often at practical completion and at the end of the defects period	The contractor, through delayed cash flow
Bank guarantee	The contractor's bank promises to pay on demand up to an amount	Returned at the agreed milestones	The contractor, in bank fees and tied up credit
Performance bond or insurance bond	An insurer promises to pay up to an amount	Returned at the agreed milestones	The contractor, in premiums
Worked cash retention	5 percent of $186,000 is $9,300	$4,650 at practical completion, $4,650 after 12 months

How retention works

Each time the contractor submits a progress claim, the payer pays the claim minus the agreed percentage. Over the job the deductions build up to a retention sum, sometimes capped at a set share of the contract price. If defects appear and the contractor does not fix them, the payer can use the money to have them fixed. If everything is in order, the sum is released at the times the contract states. In the worked row, retention on a $186,000 job is $9,300, half returned at practical completion and half a year later.

Queensland's rules

The Queensland Building and Construction Commission explains that a building contract may allow a retention amount or security to be withheld both during construction and after practical completion, and that the legislation limits the amount that can be held. If the contract does not set a defects liability period, retention must be released 12 months after practical completion, and failing to release it without a reasonable excuse is an offence. Contractors must also give subcontractors notice that the defects liability period is ending.

Retention trusts

Queensland's Building Industry Fairness (Security of Payment) Act 2017 introduced trust account rules so that cash retention withheld from subcontractors is held in a retention trust account rather than mixed with the head contractor's operating money. The aim is that if the head contractor fails, the retention money is still there to be returned. The QBCC runs training for contractors who must operate these accounts. Other states have their own rules, so check where the work is being done.

Common mistakes

Agreeing to a retention clause without a release date or a cap. Forgetting to diarise the end of the defects period and then never claiming the final release. Pricing a job without allowing for the cash flow cost of money held for a year or more. Accepting retention and a bank guarantee for the same risk. And assuming the same rules apply in every state, when release periods, caps and trust obligations differ.

Where it shows up in the product

The pricing table in the proposals module summarises Subtotal, Discount, the tax line and Total, then Deposit due now and Balance when there is a deposit, which can be none, a percentage of up to 100 or a fixed amount. There is no retention line, so a subcontractor's quote states the retention percentage, cap and release dates in its numbered terms, where the builder will look for them before signing.

Questions people ask

How much retention can be held on a construction contract?

It depends on the contract and the state. Contracts usually set a percentage of each progress claim and a cap on the total held, and some states set legal limits on both. In Queensland the legislation limits the amount, as the QBCC notes. Read the retention clause and your state's rules before agreeing to a percentage or a cap.

Can retention be used to pay for delays rather than defects?

That depends on the wording of the contract. Some retention clauses allow the money to be applied to any amount the contractor owes, including liquidated damages for delay, while others limit it to defects. Subcontractors should look for wording that confines retention to rectifying defective work.

What happens to retention if the head contractor goes broke?

Without trust protections, cash retention held by a failed head contractor is often lost among its other debts, which is why Queensland introduced retention trust accounts. In other states, a subcontractor may rank as an unsecured creditor for the amount. A bank guarantee instead of cash retention avoids the problem.

Can I offer a bank guarantee instead of retention?

Many contracts allow security to be given either way, and some contractors prefer a bank guarantee because they are paid in full on each claim. The guarantee costs fees and ties up credit, so compare that cost with the cash flow cost of waiting a year for retention. Ask before signing, because changing it later is harder.

How do I claim back retention money?

Follow the contract: usually a written claim at practical completion for the first release and another at the end of the defects liability period, with evidence that defects have been fixed. Diarise both dates when you sign. If the payer does not release it, security of payment laws in each state set out the steps for recovering money owed.

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Sources

Written and checked by the OneCraft team. Last checked 21 October 2026.