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GLOSSARYTERMS AS A CREDIT DESK USES THEM

Retention (construction)

What is a retention in a construction contract?

ONE OF 80 TERMS · FREE · NO SIGNUP

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED

// THE SHORT ANSWER

A retention is the share of each progress payment that the party paying for the work holds back from the contractor until the work is complete and its defects are put right. It gives the payer leverage over defects, and it means the contractor's cash lags its invoices. Lenders treat it accordingly: a development lender tracks retentions as cost still to be paid, and a lender to a contractor leaves retentions receivable out of any borrowing base, because they cannot be collected until the job is signed off.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

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