How to Recover Retention Money From a Contractor or Builder

What retention money is, and when it has to come back

Retention is the slice of every running account bill that the paying side keeps back, as security for finishing the job properly and for any defects that surface in the months after handover. On private building work it's usually 5 to 10 percent of each bill, and often capped at 5 percent of the contract value. Government and PSU contracts call it a security deposit and run it under their own general conditions. Either way, you've earned it. It's held. It isn't forfeited.

Your contract decides when it comes back. The common pattern is release at the end of the defect liability period (DLP), which typically runs 12 months from completion or handover, sometimes 24. Some contracts release half on completion and half when the DLP ends. Others pay it out with the final bill. A few let you take it early against a bank guarantee of the same value. Read yours.

After the release date, whoever is sitting on the money has to pay it. The only deductions allowed are the ones the contract permits and that can be backed with documents. A vague grumble about quality, raised for the first time on the day you ask for payment, doesn't entitle anyone to keep your money. That's the heart of every retention claim. Most fights come down to two questions. Has the release date really arrived? And are the deductions genuine?

Read these clauses before you write a single letter

Find the retention clause first, then read the clauses on either side of it. You're looking for the percentage and any cap, and for the event that triggers release. That could be a completion certificate, a taking-over certificate, handover to the client, the occupation certificate, the end of the DLP or the final bill. Check whether release against a bank guarantee is allowed. Then the defects clause. How must defects be notified, how long do you get to fix them, and what happens if you don't?

After that, look for a set-off or deduction clause, a liquidated damages clause for delay, and any back-to-back or pay-when-paid wording that ties your payment to what the client pays the main contractor. Read the dispute clause last. But read it properly. People skip it. Construction subcontracts very often carry an arbitration clause, and if yours does, the claim goes to an arbitrator and not to a court.

A lot of subcontractors work off a two-page work order that refers to the main contractor's general terms "as applicable". If you never got those terms, ask for them in writing now. A term you never saw and never agreed to may not bind you. And the main contractor will struggle to rely on a deduction clause it can't show was ever part of your deal.

The law behind a withheld retention

When did the defect liability period really begin?

Scratch most retention disputes and you'll find an argument about this date. The contractor says the DLP started when the client issued its completion certificate, months after your crew left, while you say it started the day your package was done and handed over to them. Then the contract says something else entirely, like "12 months from the date of virtual completion of the project". Nobody ever recorded it.

In a retention file, Advocate B.K. Singh's first question is simple. Who holds the document that fixes when the DLP started, and did the client ever see it? Plenty of papers can anchor the date. A handover note signed by the main contractor's site engineer. The joint measurement sheet for the final RA bill. An email from the project manager saying "your scope is complete, please demobilise". The client's occupation certificate for the tower. If you've got none of these, you're stuck arguing for a reasonable time. That's slower, and far less certain.

Work finished but no handover paper? Make one now. Write to the main contractor giving the date your scope was completed, attach the last RA bill and the measurement record, and ask it to confirm or list pending items within a fixed period. Whether it replies or stays silent while your letters pile up, the court will have something to go on.

Recovering retention money, one step at a time

These steps are for a subcontractor or contractor whose retention wasn't released after the due date. The first three often do the job. The rest are for when they don't.

1. Put the retention ledger together

   List every RA bill with its date, gross value, GST, TDS and the retention cut. Total it. Then match the total against the payer's own statements and the TDS showing in your tax credit statement. Everything else stands on one reconciled number. Get it right.

2. Pin down the release date in writing

   Write to the contractor or builder recording when your work was completed and when the DLP started and ended. Ask for the retention by a specific date. In the same letter, offer a joint inspection of the work.

3. Answer the snag list

   If a snag list lands, reply to each item in writing. It's fixed (with photos and a date), or it's disputed (with reasons), or it was never your scope. Answer it point by point and the contractor has very little room to keep the whole retention.

4. Send a legal notice

   If the money still doesn't come, send a legal notice demanding the retention with interest within 15 to 30 days, with the ledger attached. If you gave a bank guarantee instead of retention, ask for it back in so many words.

5. Start mediation or arbitration

   With a claim of Rs 3 lakh or more and no arbitration clause, you apply for Section 12A pre-institution mediation. Where the contract does have an arbitration clause, you send a notice invoking arbitration under Section 21 of the Arbitration and Conciliation Act, 1996 instead.

6. File the claim

   File a commercial suit, or a statement of claim in arbitration, with all the RA bills, measurement sheets, the completion and handover record, the defect correspondence and the mediation report. If the final bill was certified and the retention admitted in writing, a summary suit may be open to you.

7. Enforce the decree or award

   A decree or award is enforced against the payer's bank accounts, the money its own clients owe it, and its property. Often the most practical target is what the builder still owes it on the same project.

A retention claim rarely travels alone. Unpaid final bills, extra items and escalation usually come with it, and our page on construction and infrastructure disputes deals with those.

The excuses you'll hear, and whether they stand up

"The client hasn't released our retention yet." Every subcontractor hears this one. Whether it's a real defence depends on your contract's wording, which we come to in the next section. If the subcontract says nothing about the client's payment, it's no defence at all. The main contractor's deal with the client is a separate contract, and you aren't a party to it.

"Your work has defects." A defect notified inside the DLP, which you had a fair chance to fix and didn't, can justify deducting the reasonable cost of fixing it. That's fair enough. A defect raised for the first time after the DLP ended is much weaker. So is a lump-sum deduction with no break-up, no photographs and no third-party bill. Ask for the details in writing. Contractors who can't produce them often just release the money.

"Liquidated damages for delay." If there's a delay clause and you really were late, the contractor may claim it. But it has to show the delay was yours, not the result of late drawings, late site handover, late payments or other trades getting in your way. Section 74 caps recovery at reasonable compensation within the stated limit. Quite often the LD deduction is announced for the first time on the day retention falls due. That tells you something. Judges notice it too.

Back charges for water, electricity, scaffolding, debris removal or security are routine on multi-trade sites. They ought to be in the contract, and they ought to have been raised against running bills as the work went on. A fat bundle of back charges produced at the very end needs checking line by line. And whatever reason they give, it's the contractor who has to prove its deduction. You don't have to disprove every vague complaint.

"Back-to-back" and "pay when paid" clauses

Plenty of subcontracts say you'll be paid "on a back-to-back basis" or "when payment is received from the client". Some countries ban such clauses by statute. India doesn't. So the exact words matter a great deal. A clause that only describes when payment will happen is often read as requiring payment within a reasonable time. It isn't a licence to hold your money for ever. A clause that plainly makes the client's payment a condition of yours is harder to get past. Even then, the main contractor has to show it was chasing the client diligently, and that the client didn't withhold because of the main contractor's own default.

So put the questions to the main contractor in writing. Has the client released its retention, when, and how much? If the client refused, ask for a copy of its letter and the reason. Once the client has paid and the money hasn't reached you, the back-to-back defence is gone. And if the client is withholding for reasons unrelated to your package, say delays by the civil contractor, the clause may not protect the main contractor either.

Careful with the no-claim certificate

Final bills often get paid only after the subcontractor signs a "no claim" or "no dues" certificate saying nothing else is owed. If the retention isn't part of that payment, the certificate can be used later to argue you gave it up. Courts have held that a discharge signed under economic pressure, with no real choice, doesn't always bind. Proving that pressure years later is hard, though. Very hard.

Advocate B.K. Singh's advice on this is blunt. Don't sign a no-claim certificate without a line on the same page, handwritten or typed, saying "subject to release of retention of Rs ___ due on ___" or "signed under protest to receive the final bill payment". Send an email the same day recording what you signed and why. If the contractor won't accept a certificate with that line, get the refusal in writing as well. A reservation on record puts you in a far stronger spot than a duress argument made years later.

When a bank guarantee stands in for retention

Some contracts let you swap cash retention for a bank guarantee of the same value. Your cash is freed up. Good. But a guarantee can be invoked, and that's a different risk. A bank guarantee is an independent contract between the bank and the beneficiary, and Indian courts step in to stop its invocation only in narrow cases, mainly established fraud or irretrievable injustice. A quarrel over defects usually won't stop the bank paying.

The day the DLP ends, write asking for the guarantee to be returned or discharged, and tell your bank to note its expiry and claim period. Sometimes the guarantee is close to expiry and the contractor writes, in effect, "extend it or else we will invoke". Don't answer that one alone. Choosing between extending and resisting invocation needs care. Where real fraud or irretrievable harm exists, an urgent application for an injunction can go in without waiting for mediation.

Which forum hears a retention claim

With an arbitration clause in the contract, the claim goes to arbitration. File a suit anyway and it'll usually be sent there if the contractor asks. For institutional or ad hoc arbitration under such a clause, arbitrationlawyer.in walks through the process. No arbitration clause and a claim of Rs 3 lakh or more means a commercial suit, filed after Section 12A mediation. How those routes stack up for a contractor is set out in our guide on picking between a commercial suit, arbitration and the MSME Council.

On territory, you can sue where the defendant carries on business or where the cause of action arose, and in a construction case that usually includes the place where the site is. A jurisdiction clause naming the courts of one of those places will usually be enforced. In Delhi, commercial suits up to Rs 2 crore go to the District Judge (Commercial Court), sitting in complexes like Saket, Tis Hazari or Karkardooma, and bigger ones go to the Commercial Division of the Delhi High Court. Check the current limit. In Gautam Buddh Nagar, Ghaziabad, Gurugram and Faridabad, it's the court designated as the Commercial Court for that district.

The suit's value is the retention plus anything else you're claiming, like the final bill balance or extra items, plus interest up to filing. Retention is often just one slice of a bigger unpaid account. Claim the whole lot together. Every rupee of it. Leave something out and a later suit for it may be barred under Order II Rule 2 of the Code of Civil Procedure.

What a retention claim takes in time and money

Papers you'll need for a retention claim

How long you've got to claim retention

Generally three years. The count starts when the retention became payable, not on the date of the running bill it was cut from. Say the contract releases retention 12 months after completion, and completion was 1 April 2024. The money fell due on 1 April 2025, and your suit should be filed before 1 April 2028. Things get murky when release is tied to an event that never happened, like a certificate the engineer never issued. The start date is then up for argument. Don't bank on the generous reading.

Two things buy you more time. One is a written, signed acknowledgment of the amount by the contractor, made before the period runs out, and the other is a part payment on account. If the contractor's accounts head emails you "retention payable to you: Rs 18,42,000", save that email in more than one place. Mediation time under Section 12A is excluded too. The counting rules are explained in more detail in our guide on the time limit for recovering unpaid dues.

Subcontractor, main contractor or government job: what changes

A specialist subcontractor (electrical, plumbing, fire-fighting, facade, lifts) usually deals with a main contractor that's waiting on a builder itself. The back-to-back argument takes over, and what the main contractor has actually received is often your strongest evidence. A main contractor chasing retention from a builder or developer faces the reverse, because the builder will point at defects across the whole project and at every delay penalty it can find. Its own sales and handover records, and any occupation certificate, can help fix the completion date. Homebuyer complaints before RERA are a different matter. RERA doesn't decide contractor payment disputes. Don't go there for this.

If the retention is a security deposit under a government, PSU or municipal contract, that department's general conditions apply, along with its internal release process. You'll also need to serve a notice under Section 80 of the Code of Civil Procedure before suing the government. That route is covered in our guide on recovering dues from a government department or PSU.

When the contractor or builder is a company in financial trouble, a recovery suit may not be enough. If the total unpaid amount, retention included, is Rs 1 crore or more and undisputed, insolvency proceedings are possible. A defect dispute raised earlier can sink them, though. That's a real risk. Our guide on when insolvency beats a recovery suit explains the trade-off.

How subcontractors lose retention they'd earned

• No handover record. You packed up and left site without a single paper fixing completion. Now the DLP start date is anyone's guess.
• Ignoring the snag list. Leave it unanswered and the contractor will say you admitted the defects, then charge whatever it likes to fix them.
• Signing a clean no-claim certificate. With no written reservation, that certificate turns into the contractor's strongest defence.
• Waiting for the client to pay the main contractor. Unless your contract has a clear pay-when-paid condition, you can claim from the main contractor directly once retention is due.
• Filing separate claims for retention and the final bill. Claims from the same contract should normally go in one suit or one arbitration.
• Letting the bank guarantee roll over quietly. Every extension keeps your credit line blocked, and the risk of invocation stays alive.

What to do this week

Pull out every RA bill and payment advice and build the retention ledger. Find the paper that fixes completion, or write the letter that creates one. Answer any snag list item by item. Got a bank guarantee out there? Ask for it back. Once the release date has passed, send a dated request for release. If that goes nowhere, send a legal notice. For a wider recovery plan against the same party, see our page on the money recovery suit. If extra items, escalation or delay are mixed in, our construction disputes page explains how they're pleaded together.

If you'd like your work order, RA bills and letters checked before you write to the contractor or file anything, send them to Advocate B.K. Singh's team through the contact page.