What is retention money?
In many Australian construction contracts, the head contractor holds back part of each progress payment it owes a subcontractor. That money — the retention — is security that the work will be finished and any defects fixed. Instead of cash retention, some contracts accept a bank guarantee or an insurance bond.
A common arrangement is retention of around 5% of the contract price, built up by deducting a larger share of each progress claim until the cap is reached. It’s usually released in two stages: part at practical completion, the balance at the end of the defects liability period, often 12 months later.
For a subcontractor, retention is money earned but not yet usable. Across a busy year with several projects, the total held back can be substantial.
Why have the rules tightened?
A string of builder collapses over the past decade left subcontractors unable to recover retentions that had been mixed with the failed company’s own funds. States responded by requiring retention money to be held on trust, separate from the contractor’s working cash. How far each state has gone differs widely.
How is retention money protected in each state?
| State | Rule | When it applies |
|---|---|---|
| Queensland | Retention trust | Where the head contract requires a project trust and cash retention is withheld |
| NSW | Retention money trust account | Head contractors on projects of $20m or more |
| Western Australia | Retention money held on trust | Construction contracts of $20,000 or more (including GST) entered into from 1 February 2024, with some residential exclusions |
| Victoria | No statutory retention trust; new rights to recover security | From 15 April 2026 |
| SA, Tas, ACT, NT | Varies — check your state’s Act and your contract | — |
Queensland
Under the Building Industry Fairness (Security of Payment) Act 2017, a retention trust is required where the related head contract needs a project trust and cash retention is being withheld. According to the QBCC, project trusts currently apply to eligible Queensland Government Hospital and Health Service contracts of $1m or more, and to private, local government and state authority contracts of $10m or more. In February 2025 the Queensland Government paused the further rollout to private projects below $10m. Government contracting parties are exempt from the retention trust requirements, so on many smaller jobs your retentions won’t sit in a trust at all.
New South Wales
Under the Security of Payment Regulation, head contractors on projects valued at $20m or more must hold subcontractors’ retention money in a trust account with an authorised deposit-taking institution, keep ledgers and give subcontractors regular statements. The NSW Government’s retention money page sets out the detail. Below that threshold, there’s no statutory trust for retentions in NSW.
Western Australia
WA’s scheme is the broadest. Under the Building and Construction Industry (Security of Payment) Act 2021, anyone withholding retention on a construction contract of $20,000 or more entered into from 1 February 2024 must hold it on trust in a separate account with an authorised deposit-taking institution, keep proper records and let the subcontractor inspect them. Some residential work is excluded, including certain home building contracts made directly with a homeowner and valued under $500,000.
Victoria
Victoria has no statutory retention trust. But since the security of payment reforms that took effect on 15 April 2026, contractors have a statutory right to claim the release of performance security — including retentions — through the payment claim process, and a principal must give five business days’ notice before calling on that security.
What should subcontractors do?
- Read the retention clauses in every contract: the percentage, the cap, and exactly what triggers each release.
- Keep your own retention register for every head contractor, with amounts and expected release dates.
- Ask where your retention is held. If your state’s trust rules apply, check the statements you receive against your records.
- Diarise practical completion and the end of each defects period.
- Claim releases promptly with a payment claim as soon as they fall due. Our guide to debtor days and payment claims covers how claims work.
- Get advice early if statements don’t arrive, don’t reconcile, or a head contractor looks to be in financial trouble.
How do retentions squeeze cash flow?
Retentions create a double squeeze. Each progress payment arrives smaller than the work it covers, and the held-back money may not come back until months after the job ends.
Example scenario — illustrative only. A Sunshine Coast electrical subcontractor works on three commercial projects in a year. Across those jobs, a meaningful sum is retained. Half is due back at practical completion; the rest after a 12-month defects period. That money was earned this financial year, but it won’t be in the bank until the next — while wages, super, materials and GST on the work are all due now.
Planning tips
- Don’t count retentions as cash. Track them separately in your seasonal cash flow plan.
- Price the cost of carrying retentions into your quotes where you can.
- Negotiate the terms — a lower percentage, a firm cap, or a bank guarantee or insurance bond instead of cash.
- Stagger work so releases from earlier projects help fund newer ones.
What alternatives to cash retention exist?
Depending on the contract, alternatives include:
- Bank guarantees, which usually tie up security or a facility limit with your bank.
- Insurance bonds from a surety, which may not tie up cash in the same way.
- A lower percentage or a cap on total retention across the job.
- A larger release at practical completion, with less held through the defects period.
Each has its own cost and conditions, so compare them with the cash flow cost of having money held back. Across several jobs at once, even a modest cut in retentions can free up a surprising amount of working capital.
Which questions should you ask before signing?
- What percentage will be retained, and is there a cap?
- When exactly will retentions be released, and what triggers each release?
- Will the retention be held in a trust account, and how will I be told what’s held?
- Would a bank guarantee or insurance bond be accepted instead?
- What happens to retentions if the project is delayed through no fault of mine?
This guide is general information, not legal advice. Talk to a construction lawyer about your specific contracts.
Where does funding fit?
Retentions tie up working capital, and a working capital facility can take the pressure off. A revolving line of credit can cover wages and materials while progress payments and retention releases catch up, generally for businesses trading six months or more; for larger needs, a property-secured loan of $20,000 to $1m may suit. Our construction and trades page explains how we help subcontractors keep crews and suppliers paid, and our 60-second enquiry is free and doesn’t affect your credit score. To see how a limit refills as retentions are released, read about our business line of credit.