Retention money in construction: how to track it without mistakes

Retention money is an amount withheld by the client on each progress statement to guarantee that the work is properly carried out. It is then released at the end of a guarantee period. Simple on paper, it quickly becomes a source of forgotten money when a company runs several sites.

This article presents general management principles. Exact rates, periods and conditions depend on your contracts: always refer to your contractual documents and your adviser.

The principle

On each progress statement, a percentage of the amount (defined in the contract) is withheld by the client. The accumulated retentions are returned after acceptance of the works and expiry of the guarantee period, or replaced by a bank guarantee if the contract allows it.

A worked example

Take a contract with a 10% retention and a cumulative statement of MAD 500,000 excl. VAT, of which MAD 300,000 has already been invoiced in previous statements:

• Amount of this month’s statement: 500,000 − 300,000 = MAD 200,000 excl. VAT.
• Retention on this statement: 10% × 200,000 = MAD 20,000.
• Amount to invoice after retention: MAD 180,000 excl. VAT (before VAT and any other deductions).

The calculation is simple; it’s tracking it over time, site by site, that causes problems.

Why retentions are often lost

• They are calculated in Excel, statement by statement, with no reliable running total.
• The release date isn’t recorded anywhere.
• The site finished long ago when the guarantee expires.
• No one is in charge of chasing the client.

Best practices

• Set the retention rate at the level of each contract.
• Calculate the retention automatically on each statement.
• Keep a retention account per site and per client.
• Record the acceptance date and the expected release date.
• Schedule an alert before the due date to prepare the release request.
• Track retentions replaced by a bank guarantee separately.

What a dedicated module brings

In an ERP like Dolibarr, a retention money module automatically applies the rate to progress invoices, totals the amounts withheld per site and lists retentions due for release. “Dormant” cash becomes visible — and recoverable.

Frequently asked questions

Is retention money subject to VAT?

The tax treatment depends on your situation and your contracts. Always check this point with your accountant.

Can the retention be replaced by a bank guarantee?

Often yes, if the contract allows it. The guarantee frees up your cash but has a bank cost: the ERP lets you track both cases.

How do I know which retentions can be released?

With per-site tracking that includes the acceptance date and guarantee period, the ERP automatically lists retentions that have fallen due.

Read also: Construction site management: tracking budget, purchases and progress billing.