A percentage withheld from each construction payment until the defects liability period ends, then released.
Retention is the portion of each certified payment, commonly 5 to 10 percent, that a client withholds from a contractor as security for defects. Half is usually released at practical completion and the balance after the defects liability period. Contractors in turn hold retention from their subcontractors.
It matters because retention is money earned but not received, often for a year or more, and it is frequently forgotten or disputed. A UAE contractor with several projects can have significant sums locked in retention receivables, and significant retention payables owed to subcontractors. VAT treatment also needs care, since the tax point follows the certificate rather than the cash.
In an ERP project, retention should be a separate receivable and payable account, tracked per project and per certificate, with release dates and the ability to invoice the release. Confirm the system can show retention outstanding by project at any time. This is one of the first reports a contractor's CFO asks for and one of the hardest to produce from a general-purpose setup.
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