Can a contractor withhold retention on a project we are only supplying a product to?

What are the rules on retention?

Problem:  Could you advise us if we should be allowing a contractor to withhold retention on a project which we are only supplying a product to?

We have not yet accepted the order from the contractor because of the retention clause in the contractor’s terms and conditions, although we do not want to lose this order as the value is for around £90,000.  The retention amount is 4% and is for a period of 12 months.

We have previously agreed to retentions, but this is when our contract is for supply and installation.  We have never had this before where we are simply supplying a product.

What are the general rules on retention?

Response: There are no rules, general or otherwise, regarding retention.

For a party to withhold a [retention] sum during the works and post completion of the project, it must be agreed from the outset.  That means that a retention clause must be part of the terms and conditions of the contract.  If there is no agreement between the parties regarding withholding a percentage or sum of monies as a retention, then no retention can be withheld.

It is quite usual for employers and contractors alike to include a retention clause within contracts, whilst standard forms (ie JCT), have retention clauses written into the agreements.  However, retention is included in contracts where the supplier provides materials and labour or labour only; it is unusual to have a retention clause in contracts for the supply of goods only.  This is because under a supply and labour contract, the contractor is encouraged to quickly return to site and attend to any defects, whereas a supplier of goods only, will only replace the goods, not install.

My recommendation is to not accept any deduction for retention, and I doubt that the contractor would go elsewhere.

© Michael Gerard 2019

The advice provided is intended to be of a general guide only and should not be viewed as providing a definitive legal analysis.