Retention and Security Release Risk for Australian Builders

What it is

Retention is money the paying party holds back as security for performance. On a residential job it flows two ways. The owner may hold retention against the builder. The builder holds retention against the subcontractors.

The standard structure across Australian residential construction is 5 per cent of each progress payment, capped at 5 per cent of the contract sum, cut to 2.5 per cent at practical completion, with the balance released at the end of the defects liability period.

The risk is not the percentage. It is that retention is somebody else's money sitting in your general trading account. Money in a trading account gets spent. Three jurisdictions now force retention into trust. The thresholds are not where most builders think they are.

Where a trust account is compulsory

New South Wales

Under the Building and Construction Industry Security of Payment Regulation 2020, a head contractor on a head contract worth 20 million dollars or more must hold subcontractor retention money in a trust account with an approved authorised deposit-taking institution. Building Commission NSW must be notified in writing within 10 business days of the account opening. The head contractor keeps a ledger of every deposit and withdrawal, then gives it to the subcontractor at least once every 3 months.

Queensland

The Building Industry Fairness (Security of Payment) Act 2017 runs the project trust framework. A project trust is required for eligible contracts of 10 million dollars or more in the private sector, local government, statutory authorities and government-owned corporations. The planned drop to 3 million dollars from 1 March 2025 then 1 million dollars from 1 October 2025 was paused in February 2025 and has not resumed. Small-scale residential work of one or two living units is exempt. Where a project trust exists and retention is withheld, a retention trust account is required as well.

Western Australia

The retention trust scheme under the Building and Construction Industry (Security of Payment) Act 2021 (WA) applied to construction contracts valued at $1 million or more including GST from 1 February 2023. From 1 February 2024 the threshold dropped to $20,000 or more including GST where cash retention is held. The trust account must be opened within 10 business days of entering the contract. Parties cannot contract out. The scheme does not apply where the security is a bank guarantee or performance bond rather than cash.

The low dollar figure makes it look like every small job is caught. It is not. The scheme carves out small-scale residential work no matter the value. A contract between a head contractor and a subcontractor for works on a single dwelling such as a house sits outside the scheme, as does any contract for an associated structure on the same lot such as a granny flat, shed, patio, deck, pergola, carport, driveway or pool. Contracts made directly with a homeowner for home building work valued at $500,000 or more are also excluded, unless the contract is for a residential development business or for works on two or more dwellings on different lots. So a residential builder holding cash retention from its subbies on a house is not caught by the WA scheme. Where it bites is subcontract retention on larger commercial and multi-dwelling work above the $20,000 threshold.

Bank guarantee or cash

An unconditional bank guarantee is not cash retention, so it sits outside the trust regimes. It is also callable on demand. The bank pays the principal, debits your facility, then you argue about whether the call was justified.

The trade is liquidity against control. A guarantee ties up your facility limit but keeps your cash.

The release that never gets claimed

The most common retention loss is not fraud. It is silence.

The DLP ends, nobody diarises the release, no claim is lodged and the money quietly stays where it is. On a 400,000 dollar subcontract the final 2.5 per cent is 10,000 dollars. Across ten packages a year a builder who never chases its own retention gives away a six-figure sum over a decade.

Retention is unsecured in an insolvency unless it sits in trust. If the holder collapses and there is no trust account, you join the unsecured creditors. The trust account is not paperwork. It is the only thing between your retention and the liquidator.

The signal on a live job

• Retention held past the contractual release date with no claim lodged
• A WA construction contract of $20,000 or more that is not small-scale residential work, holding cash retention with no trust account opened
• A Queensland eligible contract of 10 million dollars or more with no project trust
• A NSW head contract of 20 million dollars or more with retention in the general account
• A retention ledger never issued to the subcontractor

What to do about it

Record two release dates on every contract you sign, whether you hold the retention or somebody holds yours. Practical completion for the first half, DLP expiry for the balance. Set the reminder 14 days before each.

Check the trust threshold against the state and the contract value before you withhold a cent. In WA the threshold is $20,000, but small-scale residential work is excluded no matter the value, so check the carve-outs before you assume you are caught.

Claim the release in writing with the contract clause quoted and the amount calculated. Nobody will remind you.