The government says it is going to ban retention. For once, it might actually mean it. There is a Bill, it has a number, it has been through committee and report in the Lords, and the ban is written into the long title. That is further than any previous attempt has got. It is also a long way short of the money arriving in your account.
I have spent enough years chasing the second half of retention to be glad about this. I have also spent enough years reading construction legislation to know that the gap between a headline and a payment is where sub-contractors get hurt. So here is what the Commercial Payments Bill actually says, where it actually is, and what it does and does not change for a business with retention sitting on somebody else's balance sheet today.
Where the Bill is, as of now
The Commercial Payments Bill was introduced in the House of Lords on 19 May 2026. It had an unopposed second reading on 9 June, went through committee on 21 July, where the government made thirty amendments of its own, and completed report stage on 15 September. Third reading in the Lords is pencilled in for 20 October. After that it goes to the Commons and starts again: first reading, second reading, committee, report, third reading, then any ping-pong over amendments, then Royal Assent.
None of that is a formality, but the Bill has cross-party support and the retention ban has not been the controversial part. The 60-day payment cap has drawn more fire in the Lords than the retention clauses have. So the honest assessment is that this is likely to become law, probably in 2027, and that nothing in it is law today.
What it says, in its own words
The mechanism is an amendment to the Construction Act. The Bill inserts new sections 113A to 113F into the Housing Grants, Construction and Regeneration Act 1996, immediately after the existing section 113 that already outlaws pay-when-paid. That is a sensible place to put it, and it tells you the government sees this as the same kind of problem.
Section 113A defines the target broadly. It catches "the practice by which one party to a construction contract ("A") deducts or retains sums of money equating to a percentage of" the amount payable, an interim payment, or the contract total, "until any condition for release or partial release of the sums to B ... is met". The definition expressly includes conditions tied to the payee meeting all its obligations, meeting specified conditions, or the expiry of "a period set aside for making good any defects". In other words, it describes retention exactly as the industry practises it, and it does not care what you call the clause.
Then it works in stages, and the stages matter.
- A two-year transition period runs from the day the new section 113B is switched on. That day is not the day of Royal Assent. It is a later commencement date the government will fix by regulations, after what its own factsheet calls "an appropriate lead-in time".
- Retention clauses agreed after the transition period ends are void. Section 113C is a one-line ban: "A retention clause in relation to which this section applies is void." Any term dealing with how such sums are released goes with it.
- Retention clauses agreed during the transition period become "ineffective" from the day after what the Bill calls "the last retention day", which is the last day of a three-year period from commencement. So a contract signed in the transition window can still take retention, but only until that date. Anything still held becomes a "transitional retained sum", with a statutory payment due date 30 days after the last retention day, and it is then pushed through the ordinary payment-notice machinery in sections 110A, 110B and 111.
- Pre-existing retention clauses cannot be varied after the transition period, except to make them more favourable to the payee. That is section 113D, and it is there to stop old clauses being quietly extended to keep the practice alive.
- A fixed sum for unauthorised retention. Section 113E creates a "retention debt" where a payer fails to pay a notified sum under section 111 and the shortfall is retention. The payee is then entitled to a fixed sum of "the higher of" £40 or "the sum that is 50% of the retention debt", on top of statutory interest and late-payment compensation. It cannot be contracted out of, though a court can remit it "if the interests of justice require it".
- A power to redraw the definition. Section 113F lets the Secretary of State amend the definition by regulations, with consultation and an affirmative vote in both Houses. The minister has said in terms that this is there in case the definition "needs to be amended to prevent the ban being circumvented". The government is expecting people to try.
The Bill does not rescue the retention you are owed today. It stops the next generation of clauses being written.
Read the dates before you celebrate
Put the stages together and the timeline looks like this. Royal Assent, perhaps in 2027. A commencement date some time after that. Two years of transition in which retention is still lawful on new contracts. Then a further year before transitional clauses expire. On the government's own architecture, retention on new contracts is with us for at least two years after commencement, and money can lawfully be held under transition-period contracts for three.
Meanwhile every contract you sign between now and commencement is under the old rules entirely. The ban on new clauses only bites contracts agreed after the transition. The Bill does not reach back and release retention you are already owed. The one part that does reach existing contracts is the fixed-sum provision, which applies to retention debts arising after the transition period whatever the date of the underlying contract. That is a genuine improvement, but it is a penalty for late payment of retention, not an end to the deduction.
So the practical position for a sub-contractor is unchanged for a good while yet: retention is your money, it is being held by somebody else, and you have to go and get it. If anything, the next few years are the period in which payers who see the end coming have every incentive to hold on as long as they can.
The argument the Lords had, and why it matters to you
The government consulted on two options. Option A was an outright ban. Option B was to allow retention but require the money to be protected, in a separate account or behind a bond. It chose the ban, on the basis that a ban was simpler to implement and enforce, and cheaper for the industry. Its consultation response records that "a significant majority (87% of responses) favoured reform" and that "many respondents also stated that the underlying driver for retentions is an economic benefit for the payer". I could have told them that for nothing.
The counter-argument, put by the Conservative front bench at second reading, was, in the House of Lords Library's summary of it, whether the ban "would prevent construction defects from being rectified". The minister's answer was blunt: retentions are "neither an effective means of preventing defects, nor remediating significant problems". The consultation response says the same thing in more measured language, noting that "in the event of defects or insolvency ... the amount withheld rarely, if ever, covered the costs".
That is the right answer, in my experience. Five per cent of a package has never fixed a serious defect. But the government also accepts, in the same document, that "there is also a need to create a larger and more sophisticated surety market" to fill the gap. Which means the thing that replaces retention will not be nothing. It will be bonds, parent company guarantees and insurance products, and somebody will pay for them.
The rest of the Bill is not a footnote
Retention gets the headlines. The payment-terms provisions may matter more in practice. As amended, the Bill caps the period from due date to final date for payment at 60 days for private payers and 30 days for public authorities, voids terms that try to stretch it, and makes statutory interest at eight per cent over base non-excludable. It also gives the Small Business Commissioner an adjudication scheme and the power to investigate persistent poor payers. If you are the smaller party on a chain of contracts, that is a meaningful shift in leverage, and it lands on every contract entered into after commencement, not just construction ones.
The next few years are the window in which a payer who sees the end coming has every reason to hold on to what it already has.
What to do now
- Keep managing retention as if the Bill did not exist, because for your current contracts it effectively does not. Triggers diarised, applications made, certificates chased.
- Expect to be asked for a bond or a guarantee on new work, and price it. A performance bond is not free, and it is not retention's twin: it secures performance rather than sitting in the payer's cash flow.
- Watch for drafting that tries to dress retention up as something else, a "quality reserve", a deferred final payment, a conditional discount. The Bill's definition is deliberately wide and the government has kept a power to widen it further. Do not assume a clever label survives.
- Read the payment-terms side of the Bill as carefully as the retention side. The cap, the non-excludable interest and the fixed-sum remedy will change how you write payment applications and how you chase them.
The end of retention, eventually
I think this one will pass, and I think it is right. Retention has been an interest-free loan from the smallest firms in the industry to the largest for a very long time, and the government's own numbers from 2017 put the amount held across the sector in England at somewhere between £3.2 billion and £5.9 billion in a year, with something in the order of £229 million lost annually to upstream insolvency. That is a lot of money to have been called "security".
But a ban that takes effect in stages, years from now, on contracts not yet signed, is not the same as being paid. Until then, the advice in the piece before this one stands. It is your money. Go and collect it.
Whatever Parliament does next, the retention already sitting in your contracts still has release triggers, due dates and notice windows that nobody else is watching. Defender Platform reads the contract, records those triggers and keeps them in front of you until the money arrives. When the rules change, it will read the new ones too.