With changes to retention payments earlier this week, Steven Murphy, founder of the UK Retention Authority (UKRA), shares his thoughts on how effective these changes will be
There has been a noticeable shift in the industry conversation in recent weeks.
Much of the focus has centred on whether retention, as a mechanism, should continue to exist in construction. In some cases, the discussion has gone further, suggesting that retention itself is being removed altogether.
In practice, that is not what is being proposed. More importantly, it may not be the right question.
Because the challenges that have affected construction payments over many years have not been driven solely by the existence of retention. They have arisen from how decisions around payment are made on live projects.
What retention was designed to do
Retention was introduced for a clear and necessary purpose. It provides security against incomplete works, defects, and performance issues that may only become apparent at, or after, completion. It is intended to ensure that obligations are fulfilled and that parties return to address outstanding matters where required.
In that context, retention is not inherently problematic. It is a mechanism designed to manage risk within a complex and often fragmented delivery environment.
The issue is not its original intent.
What retention has become in practice
Over time, however, the way retention operates in practice has shifted.
Rather than being strictly linked to defects or incomplete works, retention has, in many cases, become a broader pool of funds against which a range of commercial positions can be taken.
It is not always clearly ring-fenced, and its application is often influenced by factors beyond its original purpose.
From a delivery perspective, this is often reflected in differing interpretations of completion, commercial pressure across the supply chain, and the realities of cashflow management within projects. The result is that retention is frequently no longer viewed purely as a safeguard, but as a point of tension.
Where the real problem occurs
The most significant challenges do not arise at the point a contract is agreed, but later, at the point where a decision must be made. A subcontractor may consider their work complete. A contractor may take a different view, but the client may not yet be satisfied that all obligations have been met.
At that stage, contractual provisions are interpreted, positions begin to diverge, and the central questions become whether the work is complete, whether a defect exists, and whether payment is due.
Even where contracts are clear, the application of those provisions can vary considerably in practice.
This is where delays begin. This is where disputes develop. And this is where payments, including retention, are often held for longer than expected.
What the government has proposed
The Government’s recent announcement, “Time to Pay Up: Government unveils toughest crackdown on late payments in over 25 years,” represents an important intervention.
The intent is clear. The measures are designed to ensure that businesses, particularly SMEs, are paid on time and to prevent the abuse of retention payments within construction. The proposal to restrict the withholding of retention is intended to address long-standing concerns around funds being delayed, misused, or lost through insolvency or non-payment.
This is a significant step; however, it is important to recognise what is and is not being addressed. The proposal does not remove retention entirely. It focuses on limiting the way in which it can be withheld or applied. That distinction is critical.
The risk of misinterpretation
If retention is viewed solely as the problem, there is a risk that reform focuses on the mechanism rather than the underlying behaviour.
Restricting withholding may reduce certain forms of abuse. However, it does not remove the need for decisions regarding completion, defects, and entitlement to payment.
Those decisions will continue to arise on every project.
Without greater clarity and consistency in how they are reached, there is a risk that similar issues will persist, potentially through less transparent or more informal means. The pressure does not disappear. It simply shifts.
What this means for the industry
The current moment represents more than a regulatory adjustment; it signals a broader shift in how construction payments are expected to operate.
Historically, the industry has relied on contractual mechanisms to define rights and obligations. Increasingly, there is an expectation that outcomes will also be transparent, consistent, and accountable in practice.
This requires moving beyond defining what should happen in principle towards ensuring that what happens in reality aligns with those intentions.
The missing piece: How decisions are made
At the centre of this issue is a question that has received relatively little attention: How are payment decisions actually made on live projects?
In many cases, these decisions are informal, fragmented, and influenced by differing interpretations. They are not always consistently recorded or clearly evidenced. This creates uncertainty for all parties involved.
Introducing greater structure into how these decisions are made has the potential to address many of the challenges currently attributed to retention itself. This includes establishing clearly defined payment states, ensuring shared visibility across project participants, and creating a consistent record of how decisions are reached.
Such an approach does not replace contractual frameworks. It supports their consistent application.
What better could look like
If the industry is moving towards fairer and more reliable payment practices, the focus may need to shift from individual mechanisms to the environment in which decisions are made.
At present, decision-making often takes place in conditions where one party retains control of funds, visibility is limited, and positions are formed independently. This can create an
inherent imbalance, particularly at the point where completion, defects, or entitlement to payment are being assessed.
In such circumstances, behaviour is influenced not only by contractual obligations, but by control of cash and the commercial pressures that accompany it.
A more structured model would change that environment.
Funds would remain securely held within regulated banking arrangements, but critically, would sit within a governed framework that separates fund custody from decision-making influence. This is not simply a matter of where funds are held, but how the conditions around those funds are defined.
The status of payments would be visible to all relevant participants, and decisions would be made against clearly defined and shared criteria, rather than being shaped by unilateral control.
This does not require a fundamental change in behaviour.
The same commercial pressures, interpretations, and disagreements may still arise. However, by altering the environment in which those decisions take place, the influence of any single party is reduced, and outcomes become more balanced and consistent.
In this context, the focus shifts from attempting to control behaviour, to creating the conditions in which fair and transparent decisions are more likely to occur.
A practical response
These challenges are not new, but the current reforms bring them into sharper focus.
In response, new approaches are beginning to emerge that seek to introduce structure, consistency, and transparency into how construction payments are managed.
The UK Retention Authority (UKRA) has been developed from direct experience within construction delivery. Its focus is on introducing defined workflows, shared visibility, and structured decision points into how payments, including retention, are governed across a project lifecycle.
It operates as a governance infrastructure, rather than a fund-holding mechanism, with all monies remaining within regulated banking systems.
Conclusion
The proposed reforms to retention and late payment are both necessary and timely. They address long-standing issues affecting businesses across the construction sector, particularly in the supply chain.
However, the effectiveness of these reforms will depend not only on the mechanisms that are adjusted, but on how payment decisions are made in practice.
Retention, in itself, is not the root issue. The underlying challenge lies in the absence of consistent, transparent, and structured decision-making.
As the industry evolves, addressing this will be essential.
Because improving how payments are governed may ultimately prove just as important as reforming the mechanisms through which they are made.
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