Retentions in Construction Contracts

In this Architectural Technology podcast episode, Jonathan and Ethan explain retention money as a percentage withheld (often around 5%, with examples up to 10%) to ensure subcontractors and contractors return to remedy defects, with retentions commonly released 50% at practical completion and the remainder after the defects liability period. They outline how New Zealand’s Construction Contracts Act 2002 was introduced after a major company withheld retentions without setting them aside, then liquidated, leaving subcontractors as unsecured creditors; the Act now requires retentions to be held in trust, supports industry cashflow, outlaws “pay if paid/pay when paid,” and imposes payment timeframes and penalties. They discuss administration and reporting obligations on main contractors, contrast retentions with bonds, and clarify that the Act applies where none of the parties is a “residential occupier,” affecting some domestic-building scenarios, and they invite listeners to compare approaches in other countries such as England’s JCT contracts. Ethans's Youtube: https://youtu.be/fgsWdyekHBI?si=MGwf10l4Q4WGxBp7