How retention works on construction progress claims in Australia

If you run subcontract jobs in Australia, retention is the money you've earned but haven't been paid yet — and it's the number most likely to be quietly wrong on your books. This guide explains exactly how retention works on a progress claim, how it's capped, and when you actually get it back.

General information for Australian subcontractors — not legal or financial advice. Always check your specific contract.

What retention is

Retention (or "retention money") is a percentage of each progress payment that the party above you in the contract chain holds back. It's security: it gives them money in hand if you don't finish the work or don't fix defects. You've done the work and billed for it — they just haven't released all of it yet.

On a busy subcontractor, retention adds up fast. Held across a dozen live jobs, it can be six figures sitting in someone else's bank account, with release dates nobody is actively tracking.

The standard model: 10% per claim, capped at 5%

The retention model that runs on most Australian subcontracts works like this:

• 10% is held back on every progress claim you submit, until
• the total held reaches 5% of the contract value — then retention stops being deducted.

So early in a job you feel retention on every claim; once the running total hits the 5% cap, your later claims are paid in full. The cap is the key number: retention is limited to 5% of the contract value, not 10% of everything you ever bill.

Worked example

On a $400,000 contract:

• 5% cap = $20,000 maximum ever held.
• Each claim has 10% withheld until that $20,000 is reached.
• A $50,000 claim → $5,000 retained, $45,000 paid.
• You keep accruing 10% per claim until the held total hits $20,000, then claims are paid in full.

Variations move the cap

When a variation is approved, it lifts the contract value — which means the 5% cap rises with it. Approve $60,000 of variations on that $400,000 job and the adjusted contract is $460,000, so the cap moves to $23,000.

This is where spreadsheets quietly go wrong. If your variation register and your retention calculation aren't connected, the cap never updates and your numbers drift. Every approved variation should recalculate the retention base.

When you get retention back: the 50/50 release

Retention is released in two halves:

1. 50% at Practical Completion (PC) — once the works are complete and fit for use.
2. 50% at the end of the Defects Liability Period (DLP) — usually 12 months after PC, once any defects have been made good.

The moment you hit PC, the clock starts on both dates. If you're not tracking them, you're relying on the client to remember to pay you — and they won't. The two release dates should be generated automatically the second a PC date is set.

A protection worth knowing: "pay when paid" is void

Across Australia, "pay when paid" clauses are void. A head contractor cannot make releasing your retention conditional on them being paid upstream. If your release is being held up because "the client hasn't paid us yet," that conditionality isn't enforceable. Know what you're owed and when it's due, and you're in a far stronger position to ask for it.

The question every subbie should be able to answer

If that takes more than a few seconds, it's because the answer is scattered across multiple spreadsheets and your accounting system. Step one to getting that money back is simply being able to see it: one screen, every job, every release date.

This is exactly the problem construct-it is built for — retention calculated correctly on every claim, with the PC and DLP release dates tracked automatically. (Currently in early access for AU subcontractors.)