Retention Money in Construction: Bank Guarantee, Release and Chasing

Retention money is a sum that the client (the project owner who orders the works) withholds from the payments due to the contractor. It secures the correction of defects noted at acceptance, known as reservations (snags). For French private contracts, the law of 16 July 1971 sets the cap, expressed as a percentage of the contract value, and the contract sets the actual rate.

The client cannot withhold anything on their own initiative. In a private contract, retention exists only if a contract clause provides for it. The cap in the 1971 law is a maximum, not an imposed rate: the contract may provide for a lower percentage, or no retention at all. The exact percentage appears in the text of the law, available on Légifrance: look it up before negotiating or contesting a retention, and check that it has not been amended.

In a public contract, retention falls under the French Public Procurement Code and the contract documents, notably the CCAG Travaux, the general administrative specifications applicable to public works contracts. In every case, the calculation base (contract value, with or without change orders, excluding or including taxes) is found in the contract: reread it before signing.

Retention money, completion guarantee, ten-year liability and insurance: do not confuse them

These mechanisms have different purposes and they add up. Retention is a sum held back, whereas the statutory construction guarantees and insurance policies bind the contractor's liability over time.

Retention money and related guarantees Mechanism | Purpose | Duration or benchmark | Who bears the burden Retention money | Secure the clearing of the snags noted at acceptance | Sum held until its release, according to the law and the contract | Contractor's cash tied up Completion guarantee (garantie de parfait achèvement) | Repair defects reported during the year following acceptance | One year from acceptance | The contractor, through remedial works Ten-year guarantee (garantie décennale) | Repair damage that compromises the structural soundness of the building or makes it unfit for its purpose | Ten years from acceptance | The contractor, covered by their insurance Compulsory insurance | Ten-year liability cover for the contractor, structural damage insurance (dommages-ouvrage) for the project owner | Deadlines set in the contracts and policies | Each party for its own insurance Source: French Civil Code, statutory construction guarantees. The exact conditions are set out in your contract and your policy.

A progress invoice (situation de travaux) is the document that bills the progress of the site at regular intervals. Retention money shows up on it as a deduction line: the contractor bills the work completed, then subtracts the retention to arrive at the net amount payable. State on each progress invoice the rate applied, the base used and the amount withheld.

Keep a running total of retentions. At each progress invoice, compare it with the total amount provided for in the contract, then carry it into the final invoice along with the payments already made.

What to check on each progress invoice

• The rate and the base match the contract, change orders included. • The retention appears on a separate line, with its amount for the period and its running total. • Payments on account and previous progress invoices are carried forward without discrepancy. • The total withheld is identical in the last progress invoice and in the final invoice.

A retention that is not stated, calculated on the wrong base or carried forward with an error forces the contractor to reconstruct the history in order to claim what is owed. Rigorous site tracking, progress invoice after progress invoice, makes this check easier. Before issuing the final invoice, carry the retention from each progress invoice onto the statement, line by line, and reconcile the total. For the VAT treatment of withheld sums, ask your accountant to confirm.

A invoicing management tool can calculate the retention on each progress invoice and carry it over automatically to the final statement, which limits discrepancies in amounts.

Yes, when the legal framework and the contract allow it. A bank guarantee is a written commitment by a bank to pay the client if the contractor does not clear the snags. It replaces the sum held back: the contractor is then paid in full, with no retention.

In a private contract, the law of 16 July 1971 provides for this substitution through a personal and joint guarantee (caution personnelle et solidaire), by which the bank undertakes to pay if the contractor defaults. In a public contract, the form of the guarantee (a surety or a first-demand guarantee, where the bank pays on simple request without any debate on the merits) is set out in the Public Procurement Code, the CCAG Travaux and the contract documents. The mandatory wording and the timing of the request are found in those documents: ask the contracting authority for them before approaching the bank.

Retention money or bank guarantee Criterion | Retention money | Bank guarantee Contractor's cash | Sum tied up until release | Full payment, but a banking commitment to manage Process | None, provided for in the contract | Request to the bank, issue of a compliant instrument Cost | No direct cost | Bank fees, to be negotiated with the institution Main risk | Delay or blockage at release | Non-compliant instrument, which leaves the retention in force Depends on | Contract clause | 1971 law in private contracts, contract documents in public contracts The cost of a guarantee varies depending on the bank and the company's profile: ask for a written quote.

When and how to apply

Plan ahead from the contract negotiation stage: provide for the possibility of substitution and the form of guarantee expected. With the bank, prepare the contract, the guaranteed amount and the duration, then have the wording of the guarantee checked before activating it. The guarantee uses up part of the company's commitment capacity with its bank, which may weigh on other financing.

Acceptance (réception) is the act by which the client declares that they accept the works, with or without reservations. The release period is counted from that date. In a private contract, it follows from the law of 16 July 1971 and the contract; in a public contract, it follows the CCAG Travaux and the contract documents. Look up the exact period in those texts as soon as acceptance takes place and note the deadline in your diary.

In a private contract, the 1971 law also provides for escrow (consignation), meaning the deposit of the sum with a third party, when the client wants to keep the sum because snags have not been cleared. The client's silence does not entitle them to keep the retention beyond the deadline: they must release the sum or place it in escrow. Check this point in the applicable text before starting a dispute.

Clearing the snags remains the contractor's best protection. The contractor fixes each item, then has the clearance recorded in writing: this record removes the client's reason for placing the sum in escrow. In case of disagreement, have the approach validated by legal counsel before acting.

Steps to follow

1. Keep the acceptance report and the list of snags, with the date. 2. Deal with each snag and obtain a written record of clearance, signed by the client or their representative. 3. Note in the diary the release date, calculated from acceptance or set in the contract. 4. At the deadline, send a written release request with the total amount withheld and its supporting documents. 5. If the client does not release the sum and has not placed it in escrow, move on to a reminder and then a formal notice. 6. Issue the release invoice or statement, depending on the practice under the contract.

The major risk is forgetting: retention money is not released by itself. A deadline that is not tracked or snags never recorded as cleared can block the sum for months. Set an alert for the deadline as soon as acceptance takes place.

Proceed in written stages. Start with a reminder by email or letter that cites the contract, the acceptance date, the clearing of the snags and the amount due, and ask whether the sum has been placed in escrow. If there is no reply, send a formal notice (mise en demeure), that is, a letter requiring the client to pay within a set period, by registered letter with acknowledgement of receipt. It officially dates the request and prepares for possible action.

If the formal notice has no effect, the remedies depend on the contract and the nature of the contract: mediation or conciliation provided for in the contract, then action before the competent court. Late-payment interest, its rate and its starting point are found in the payment clause of the contract and in the applicable texts. For a dispute over the quality of the works, consult legal counsel: the outcome of proceedings is never guaranteed.

Documents to keep to support the claim

• The signed contract, with its change orders and the retention clause. • The progress invoices and the final invoice, with the running total of retentions. • The acceptance report and the list of snags. • The written record of the clearing of the snags. • The bank guarantee, if one was used. • All written exchanges: emails, letters, reminders and acknowledgements of receipt.

Do not withhold your own performance or payment without advice Suspending a service or offsetting a sum on your own initiative exposes you to a challenge. Have the approach validated before acting.

No regime is universal. In a private contract, retention rests on the contract and on the French law of 16 July 1971. In a public contract, it depends on the Public Procurement Code, the CCAG Travaux and the contract documents, including the final general statement (décompte général définitif), the document that settles the final balance between the contractor and the public purchaser. In subcontracting, the contract between the main contractor and the subcontractor sets the essentials, within the framework of the French law of 31 December 1975 on subcontracting.

Three frameworks, three logics Criterion | Private contract | Public contract | Subcontracting Basis | Contract and law of 16 July 1971 | Public Procurement Code, CCAG Travaux, contract documents | Subcontracting contract and law of 31 December 1975 Substitution by guarantee | Personal and joint guarantee (1971 law) | Surety or first-demand guarantee, depending on the contract documents | To be provided for in the subcontracting contract Release | Period set by the 1971 law and the contract, from acceptance | CCAG Travaux and contract documents, up to the final general statement | According to the subcontracting contract, often tied to acceptance by the end client Subcontractor payment guarantee | Not applicable to the main contractor | Not applicable to the main contractor | Guarantee or payment delegation in private contracts; direct payment in public contracts for an approved subcontractor Current texts to be consulted on Légifrance before any decision.

For the subcontractor, the risk lies in the chain of events: release often depends on events between the main contractor and their client. The 1975 law also protects the subcontractor's payment: in a private contract, through a guarantee or a payment delegation; in a public contract, through direct payment by the public purchaser for the approved subcontractor. Ask for these guarantees to be put in place before starting and check their conditions in the applicable text.

In a public contract, follow the retention through to the end of the guarantee period and the final general statement, then request release or the lifting of the guarantee according to the contract documents. For public works companies, this tracking is added to the file for each contract. The bidding phase does not concern retention: the guide to responding to public construction tenders (DC1-DC4) covers it in detail.

Delays rarely come from a client's refusal in principle. They come from an incomplete file: a retention poorly tracked, a forgotten deadline, snags never recorded as cleared. The table below presents the most common mistakes, their consequence and the good practice.

Common mistakes and good practices Mistake | Consequence | Good practice Retention not stated or wrongly calculated | Discrepancies between progress invoices and final invoice, challenge to the amount | Show rate, base, amount and running total on each progress invoice Guarantee not requested in time | Retention applied when a guarantee was possible | Provide for substitution from the negotiation stage Snags not tracked | Gives the client grounds to place the sum in escrow or delay release | List the snags, deal with them, obtain a written record of clearance No written reminder | No proof of the request, interest difficult to claim | Remind in writing, then send a formal notice by registered mail Supporting documents cannot be found | File impossible to defend | Archive contract, progress invoices, report and exchanges in a single file

These mistakes have a common cause: retention tracking is handled at the end of the project when it is built up progress invoice after progress invoice. An administrative manager who checks the running total withheld every month avoids having to reconstruct the history when claiming.

Checklist before the final invoice

• The contract, its change orders and the retention clause are in the file. • The running total of retentions matches the sum of the progress invoices issued. • Payments on account and the balance reconcile without discrepancy. • The acceptance report is signed and dated. • Each snag is cleared, with a written record. • The release date is in the diary, with an alert. • The release request is ready, with the supporting documents.

Key takeaways Retention money is a sum held by the client as security for clearing the snags noted at acceptance. In a private contract, it exists only if the contract provides for it, within the cap set by the French law of 16 July 1971, to be looked up on Légifrance. In a private contract, the client releases the retention at the deadline or places the sum in escrow; in a public contract, release follows the CCAG Travaux and the contract documents. A written record of the clearing of snags and an alert on the deadline are the contractor's best protections. Retention money replaces neither the completion guarantee, nor the ten-year guarantee, nor compulsory insurance.