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Retentions have long been one of the most frustrating cash-flow burdens in the UK construction industry. Main contractors routinely hold back part of a subcontractor’s payment as security against potential defects, and in practice retentions are too often used not for quality control, but as an informal, interest-free working capital facility for tier-1 firms.

The Government’s Commercial Payments Bill, introduced in the House of Lords on 19 May 2026, directly targets this practice with a landmark proposal: a ban on construction retentions. It builds on the wider late payment reforms we covered in our earlier look at the Commercial Payments Bill.

What the legislation changes for construction

Introduced as part of the UK’s broader crackdown on late commercial payments, the Bill includes protections aimed specifically at the building sector:

• A ban on retentions: the Bill prohibits the deduction and withholding of retention sums under construction contracts.
• A phased transition: retention clauses can still be agreed during a two-year transition period, but those clauses become ineffective after a further one-year run-off, so the practice is phased out over three years in total.
• Voiding new clauses: once the two-year transition ends, any new clause allowing one party to deduct or retain cash under a construction contract will be void. Firms will also be blocked from varying old retention clauses unless the change improves the payee’s position.
• Compensation for unlawful retentions: a payee will be entitled to recover a fixed sum worth 50% of the retention debt, on top of statutory interest and existing late payment compensation.

The Bill is still progressing through Parliament and has not yet received Royal Assent, so the detail may change before it becomes law.

What this means in practice

A statutory ban on retentions gives subcontractors significant legal protection, but it does not automatically fix cash flow on site.

In construction, getting paid on time still relies heavily on strict procedural compliance: submitting applications for payment on time, securing signed valuation certificates, and tracking pay-less notices. When main contractors can no longer rely on retentions to manage their working capital, they may look for other administrative reasons to delay interim payments.

For subcontractors, the focus must shift from waiting on final retentions to locking down immediate, stage-by-stage credit control. Knowing exactly which valuation certificates are outstanding, and acting on them the moment a pay-less window closes, is essential to maintaining healthy site cash flow.

Where Collections Cloud fits

Collections Cloud provides credit control and debt recovery software built for UK SMEs, giving subcontractors complete visibility over ageing invoices, stage payments, and overdue balances without needing a dedicated credit control team. Take a look at how it works on our platform features page, or compare options on our pricing page.

Sources: GOV.UK, 19 May 2026; House of Lords Library, Commercial Payments Bill [HL] briefing; Construction Enquirer, “Retentions axe will take three years to fall”, 20 May 2026; UK Parliament, Commercial Payments Bill [HL].