The End of Retentions: A Three Year Clock That Has Not Started

Retentions have survived every reform proposal put to Parliament for thirty years. The Commercial Payments Bill will end them, and the trade press has reported it as an event: retentions banned. The Bill does not do that. Read against the clauses rather than the headline, it sets three clocks running from a commencement date that has not yet been appointed, bans nothing on the day it is passed, leaves a category of existing retention clauses untouched, and then does something the reporting has largely missed. It attaches a fixed sum of 50 per cent to any retention withheld without a compliant payment notice, and it applies that sum to contracts signed long before the Bill existed. For anyone running a final account book, the question is not whether retentions are ending. It is which of the three clocks a given contract sits on.

The Commercial Payments Bill [HL] is a government Bill of session 2026-27. It originated in the House of Lords on 19 May 2026, following a commitment in the 2026 King's Speech, and had an unopposed second reading on 9 June 2026. Committee stage was taken on 21 July 2026, when 105 amendments were tabled and 30 government amendments were agreed without division. Report stage was taken on 15 September 2026, and third reading is scheduled for 20 October 2026.¹

It has not yet been to the Commons. Every Commons stage, consideration of any Lords amendments and Royal Assent remain ahead of it, and the operative provisions then require commencement regulations. The version to read is HL Bill 55, as amended on Report, published on 15 September 2026. This matters for more than pedantry: report stage inserted a new clause, which moved every later clause number up by one. The retentions provisions were clauses 11 to 17 in the committee print and are clauses 12 to 18 in the current one.²

The new clause is itself worth noting. Throughout second reading and committee, peers pressed the government to go below the 60 day maximum, with support for 45 days and amendments seeking 30. The government's answer on report was a power rather than a number. New section 2F permits the Secretary of State to substitute the day counts by regulations, but only downwards: no higher than 30 for public authorities, no higher than 60 for everyone else. It also requires the Secretary of State to consult on whether to use that power within five years of the payment terms provisions coming into force.³

Clauses 12 to 18 insert new sections 113A to 113F into Part 2 of the Housing Grants, Construction and Regeneration Act 1996, immediately after section 113. Section 113A does no operative work: it defines the practice, being the deduction or retention by one party of sums equating to a percentage of the amount payable, of an interim payment or of the contract total, until a condition for release is met. The definition expressly includes conditions turning on completion of obligations, on specified conditions, and on the expiry of a defects period.⁴

The operative provisions then run on two periods, both measured from the day sections 12 and 13 commence. The first is the transition period, two years long. The second runs to the last retention day, which is the last day of three years from the same start. Sections 14, 15 and 16 do not commence with the rest: clause 32(3) brings them into force on the day after the end of the two year transition period.⁵

Set against each other, those provisions leave a gap that is easy to miss and commercially material. Section 113B reaches clauses agreed during the transition period and pre-existing clauses varied during it. Section 113C reaches clauses agreed after it. A retention clause in a contract entered into before commencement, and never varied during the transition period, is caught by neither. Its retention regime survives the ban as a matter of contract.⁶

The reform is not self-executing. What it changes on any given contract depends on when the clause was agreed, and on whether anyone has touched it since.

Section 113E is where the Bill acquires teeth, and it is the provision the commentary has almost entirely passed over. It creates a new concept, the retention debt. A retention debt arises if, or to the extent that, the requirement in section 111(1) applies to a sum and is not complied with, and the sum is deducted or retained as a retention within section 113A(1). In other words, it engages where a notified sum is withheld by way of retention without a valid pay less notice.⁷

Where a retention debt arises after the end of the transition period, it is an implied term of the construction contract that the party owed the debt may recover a fixed sum of the higher of £40 or 50 per cent of the retention debt. A contract term is void so far as it purports to exclude or vary that implied term. The fixed sum is in addition to statutory interest and to any section 5A compensation, and the court may remit it in whole or part if the interests of justice require.⁷

Three features of that provision deserve attention from anyone who drafts or administers payment notices. First, it is not a penalty for retaining money; it is a penalty for retaining money without the notice the Act already requires. The trigger is non-compliance with section 111(1), which has been the law since 2011. Second, it is not capped, because 50 per cent of a large retention is a large number, and the only relief is the court's discretion to remit. Third, and least remarked, subsection (7) applies the implied term to construction contracts entered into before the transition period began or during it, as well as after. The fixed sum therefore reaches back into the existing contract book in a way the rest of Chapter 2 does not.⁷

That is a deliberate contrast. Clause 11 provides that the amendments made by clauses 1 to 9 and Schedule 1, which include the maximum payment terms, do not affect contracts entered into before the relevant provision commences. Chapter 2 on retentions carries no equivalent carve-out, and section 113E states the opposite in terms. Payment terms reform is prospective. Retentions enforcement is not.⁸

Section 113B does not simply switch off the clause and leave the cash where it sits. Any sum deducted or retained during the transition period in reliance on a clause caught by section 113B, and unpaid at the end of the last retention day, becomes a transitional retained sum, and the Act's payment machinery is then applied to it as though it were any other payment under the contract. The payment notice provisions, section 110B and section 111 all apply.⁹

The dates are fixed by the section rather than by the contract. The payment due date is 30 days from the day after the last retention day, or any earlier date the parties agree in writing. The final date for payment is 30 days after the payment due date where the payer is a public authority, and 60 days where it is not, again subject to any earlier agreed date.⁹

The consequence is that every payer holding retentions on affected contracts will face, on a single date, a payment cycle on the whole of that book, governed by the notice regime. A payer that wishes to withhold any part of a transitional retained sum will have to serve a compliant pay less notice to do it, and a failure to do so is precisely the circumstance in which section 113E attaches its fixed sum. The reform therefore ends by routing the entire retention book through the notified sum machinery, which is the part of the Construction Act that decides disputes on documents rather than merits.

Statute is about to convert a contractual entitlement into a payment cycle, and payment cycles are won and lost on notices.

The payment terms half of the Bill is more straightforward but contains one provision that should change drafting practice immediately on commencement. New section 2D of the 1998 Act, which the Bill renames the Commercial Payments and Interest on Late Payment Act 1998, requires the final date for payment of a relevant construction payment to fall within a permitted period: 30 days from the day after the payment due date where the purchaser is a public authority, and 60 days where it is not. A term purporting to provide otherwise is void, and the relevant Scheme provision applies instead as an implied term.¹⁰

Subsection (8) is the provision to note. A term of any other contract binding the parties, expressly including a contract settling a dispute under the main contract and a contract by which the supplier waives its right to be paid in accordance with the main contract, is void so far as it purports to vary or override the final date for payment so that it falls outside the permitted period. Settlement agreements and side letters that extend payment dates will not do the work they were drafted to do.¹⁰

Two further points of detail. The Bill amends section 110B so that the payee's default notice cannot operate to postpone the final date for payment beyond the permitted 30 or 60 day period, closing an interaction that would otherwise have undone the cap. And the separate fixed sum for raising a dispute late, in new section 11A, which the trade coverage has repeatedly described as a construction measure, expressly does not apply to construction contracts. Construction has its own fixed sum, in section 113E, on a different trigger and at a very different level.¹¹

The case for the ban was never really about defects. The government's position, put by the minister after second reading, is that retentions are neither an effective means of preventing defects nor of remediating significant problems. The consultation that preceded the Bill ran from 31 July 2025 to 23 October 2025 and drew 867 responses, and the response records support for a transitional period of 12 to 24 months and a commitment to consult further before a final decision on implementation timing. That commitment is the reason the clock in the Bill has not started.¹²

The case for the ban is about what retentions are when the payer fails. The administrators of the eight ISG companies, which entered administration on 20 September 2024, state the position plainly on their own creditor page: unsecured creditor claims may include unpaid invoices, work in progress not yet invoiced or certified, retentions or any other contractual claims, and no payments are expected to be made to unsecured creditors. Recoveries of around £38.5m were reported in April 2026 against unsecured claims reported at about £885m.¹³

Nothing in the Bill changes that for money already retained. The ban operates prospectively on clauses, and the transitional machinery in section 113B converts retained cash into a payment obligation only if the payer is still solvent when the last retention day arrives. Until then, and for the whole of the transition period, the protections available are the ones that have always been available and are contractual rather than statutory.