By Legal Futures Associate dospay
In the wake of ISG’s collapse in 2024, the team at dospay launched the Retention Protection Pledge. With over 20 signatories in the first few weeks of existence, it was clear that more was needed.
In February 2025, the UK Retention Deposit Scheme was launched to protect construction retentions, free of charge, at the Bank of England.
1. Why this scheme exists
Retentions in construction contracts can be the cause of multiple disputes, delays, or financial risks if the funds are not properly protected. The UK Retention Deposit Scheme (“the Scheme”) provides a trust-based solution that holds withheld sums securely, helping ensure smoother payments and transparent release. By ring-fencing retention money, the Scheme aims to minimise cashflow issues, simplify dispute resolution, and give confidence to all parties—Employers, Contractors, and Subcontractors alike that retentions will be handled properly and returned at the appropriate time.
2. Who can join and what to expect
The Scheme is open to construction contracts with works in England or Wales, a minimum contract sum of £50,000 (pre-adjustments), and a retention denominated in sterling. Each party must pass Know Your Customer (KYC) or Know Your Business (KYB) checks.
Once approved, the parties sign up through an online portal, provide relevant contract details (like location, retention amount, and bank information), and agree that the UK Retention Deposit Scheme Rules override conflicting contract terms. For multi-tier projects, Subcontract Accounts can be linked to the Tier 1 Contract Account, allowing an integrated approach to retention handling across the supply chain.
3. Funding the account and managing retention
Before each Final Date for Payment, the Employer (in the case of a Tier 1 Contract) deposits the retention portion into a designated Contract Account.
The Scheme allocates those funds on trust: initially for the Employer, then—once a valid Payment Notice or Pay Less Notice is uploaded—for the Contractor or Subcontractor in the appropriate amount(s).
These allocations adjust automatically as new notices come in. Any surplus remains on trust for the Employer. If additional Subcontract Retentions exist, portions of the same Tier 1 fund may be reallocated in favour of the various Subcontractors, preventing the need for separate (or duplicate) cash deposits unless there is a shortfall.
4. Releasing funds
When the conditions for releasing retention (often completion or the end of a rectification period) are met, the Contractor or Subcontractor files a Release Notice via the portal.
After the paying party is notified, funds are paid out unless a legitimate dispute or court order intervenes.
5. Insolvency, fees, and other practical considerations
If an Employer or Contractor becomes insolvent, the Scheme’s Rules govern how funds on trust are released. For example, if the Tier 1 Contractor fails financially, Subcontract Retentions remain protected and may be paid to the Subcontractors upon proof of termination or step-in arrangements.
Fees for using the Scheme are relatively straightforward – provided the Bank of England Base Rate is greater than or equal to 3.75%, and the accounts are being used, they are free. If the account is dormant, contains less than £5,000, or the Bank of England base rate is less than 3.75%, the fees are the greater of £20 or 0.2% of the retention per month.
Security is handled via a dedicated secure online portal. Notices, payment evidence, and contract documents are all uploaded there, with each party designating Users who can either manage or view the account.
6. Final thoughts for advisors
Lawyers guiding clients through the Scheme should confirm the contract meets eligibility rules, alert their clients to gather relevant KYC/KYB documents in advance, and ensure each payment cycle’s notices are submitted on time.
Monitoring balances and following the correct procedure for releasing retentions minimises delays. If disputes arise, the Scheme’s structured approach ensures funds remain secure until a binding resolution is reached.
By understanding these fundamentals and providing clients with a clear roadmap, lawyers can help construction stakeholders protect their interests and maintain healthier cashflow throughout the project.
