Retention and Defects Liability: When Your Money Is Released
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Retention · Defects Liability · Security of Payment
Two moments release your retention, not one, and the protection over it changes at the state border. This guide sets out when the money comes back, what the defects liability period obliges you to do, whether the cash is protected in trust, how long you have to claim it if release fails, and what to do when the builder says defects, backcharges or the head contract justify holding it.
Quick Answer
Most construction contracts release cash retention in two stages: commonly about half at practical completion and the balance after the defects liability period. Your contract sets the release trigger; your state determines what trust or security-of-payment protection sits behind the money while you wait.
Also called: retention money, retentions, retainage, or a holdback.
Start with the problem you actually have
How much of your money is held as retention, and for how long?
Retention is a percentage of every progress payment, held through the build and then held again through the whole defects liability period after you have left site, which is commonly twelve months from practical completion. Queensland is the only Australian jurisdiction that puts a legislated ceiling on the percentage. Everywhere else the figure is whatever your contract says.
| Jurisdiction | Ceiling before practical completion | Ceiling after practical completion | Ceiling per progress payment | Release where the contract says nothing |
|---|---|---|---|---|
| Queensland, commercial building contracts and subcontracts | 5 per cent of the contract price | 2.5 per cent of the contract price | 10 per cent of cash retentions | 12 months after practical completion |
| Every other Australian state and territory | Set by contract. No statutory ceiling located | Set by contract. No statutory ceiling located | Set by contract. No statutory ceiling located | Set by contract. AS 4000-1997 falls back to 12 months only where Annexure Part A item 27 is left blank |
Basis: QBCC Contractor’s Guide to Payments, April 2022, and QBCC Retentions and securities, as at 20 February 2024; AS 4000-1997 General conditions of contract, Annexure Part A item 27. Scope: the Queensland figures apply to commercial building contracts and subcontracts, not domestic contracts. Qualifier: the regulator’s own word is “generally”, and a contract that specifies a period governs instead of either fallback. The non-Queensland row is a negative finding from targeted searching, not an exhaustive audit.
In Queensland the regulator states that, generally, the retention or security withheld must not exceed 5 per cent of the contract price at any time before practical completion, that this reduces to 2.5 per cent after practical completion, and that you are only able to withhold 10 per cent of cash retentions from each progress payment.
Basis: QBCC Contractor's Guide to Payments, April 2022. Scope: Queensland commercial building contracts and subcontracts, not domestic contracts. Qualifier: the regulator's own word is "generally", so treat these as the regulator's general position rather than an absolute, and read your contract.Those are Queensland numbers. No other Australian jurisdiction was identified that legislates a retention percentage. Everywhere else the figure is whatever your contract says, with no statutory ceiling located, which is why a 10 per cent retention on a subcontract is not automatically unlawful outside Queensland. If the percentage in front of you looks high, the place to argue it is at tender, not at practical completion. The term itself is set out in the retention glossary entry.
Length is the other half of the scale, and it is set the same way. Two fallbacks exist for a contract that says nothing. The Queensland regulator states that if a building contract does not specify a defects liability period then any retention amounts or security held must be released 12 months after practical completion.
Basis: QBCC Retentions and securities, as at 20 February 2024. Qualifier: a contract that specifies a period governs instead. This is a fallback, not a mandatory length.The second fallback is contractual rather than statutory. AS 4000-1997 sets a defects liability period of 12 months at Annexure Part A item 27, but only where that item is left blank.
Basis: AS 4000-1997 General conditions of contract, Annexure Part A item 27, published 5 August 1997 and incorporating amendments to March 2005. Qualifier: in practice the annexure is almost always filled in, so this is the fallback, never "the standard period".When is retention actually released?
In two moments, not one, and the second is the one that hurts. Conventionally the held amount is halved at practical completion and the balance falls due at the end of the defects liability period, which means the last slice of money on a job you finished can still be twelve months away.
Retention is deducted from progress payments, which is the only mechanical link you need here: the money never arrives in the first place, so there is nothing to chase until release falls due. How a progress claim is built, priced and read is covered properly in the progress claim lender read, and this page defers to it.
Two jurisdictions override the contract on release timing.
Release clocks that override the contract
Victoria reaches that result by a different route to Queensland. Rather than legislating a release date, it classifies retention money as performance security and then caps how long release can take once a claim is served. The practical effect for a Victorian subcontractor is that the defects liability period still sets the timing, but the contract can no longer stretch the tail after it.
Do Queensland subcontractors get notice before the defects liability period ends?
Yes, where the Queensland notice requirement applies. Contractors must generally give subcontractors the approved section 67NC notice within 10 business days before the defects liability period ends. If the subcontract period is linked to another building contract, the alternative clock is 5 business days after the contractor receives the upstream notice. The requirement does not apply to a contracting party who entered the building contract as principal.
Basis: QBCC, Retentions and securities, last reviewed 20 February 2024, reflecting s 67NC of the Queensland Building and Construction Commission Act 1991. Qualifier: this is a Queensland notice rule, not a national rule, and the linked-contract timing is a different trigger rather than an extra five days added to the ordinary period.Can a head contractor refuse to release your retention because they have not been paid?
No. Tying the release of your retention to something that happens under the head contract is a pay when paid provision, and a pay when paid provision has no effect under the security of payment legislation in every Australian jurisdiction. The High Court settled the point in 2018, and it is the single most useful thing on this page if the excuse you are being given is that the job above you is not finished.
The case is Maxcon Constructions Pty Ltd v Vadasz. A subcontractor provided cash retention on a piling package. The subcontract fixed release of that retention to a certificate of occupancy being issued for the development, an event under the head contract that had nothing to do with whether the piling was any good. The adjudicator held the retention provisions were pay when paid provisions and therefore of no effect. The High Court unanimously dismissed the head contractor’s appeal.
Basis: Maxcon Constructions Pty Ltd v Vadasz [2018] HCA 5, High Court of Australia, judgment 14 February 2018, decided on section 12 of the Building and Construction Industry Security of Payment Act 2009 (SA). Qualifier: a pay when paid prohibition exists in every Australian jurisdiction, but the wording differs between Acts and those differences can affect how the reasoning applies in a given state. General information only. Whether a particular clause in your contract is caught is a question for a solicitor, not for this page.The practical test is not whether the money is late. It is what the release clause is hooked to. A clause that releases your retention on practical completion of your own works and the end of your own defects liability period is doing what it should. A clause that waits for the head contract to reach practical completion, or for a certificate of occupancy, or for the head contractor to be paid by the developer, is hooked to the wrong contract.
| Jurisdiction | Act | Provision | Note |
|---|---|---|---|
| South Australia | Building and Construction Industry Security of Payment Act 2009 | Section 12 | The provision Maxcon was decided on |
| New South Wales | Building and Construction Industry Security of Payment Act 1999 | Section 12 | Equivalent wording to the South Australian provision |
| Queensland | Building Industry Fairness (Security of Payment) Act 2017 | Section 74, applied by section 73 | Section 74 defines the provision, section 73 records that it has no effect |
| Western Australia | Building and Construction Industry (Security of Payment) Act 2021 | Section 14(2) | Pay when paid provisions have no force or effect |
| Victoria | Building and Construction Industry Security of Payment Act 2002 | Section 13 | The 2026 form of the provision also reaches a right to claim release of performance security where that right is made dependent on another contract |
| Tasmania | Building and Construction Industry Security of Payment Act 2009 | Section 16 | Expressly includes liability or a due date made contingent or dependent on the operation of another contract |
| Australian Capital Territory | Building and Construction Industry (Security of Payment) Act 2009 | Section 14 | Pay-when-paid provisions have no effect |
| Northern Territory | Construction Contracts (Security of Payments) Act 2004 | Section 12 | Pay-if-paid and pay-when-paid provisions are prohibited |
Sources and currency: the named Acts, read against the current official publishers for this guide. Victoria is on the authorised version in force from 24 June 2026; Tasmania is current from 1 July 2025; the ACT is R14 effective 6 December 2025; the Northern Territory Act remains in force. Qualifier: the statutory prohibition is national, but whether a particular retention clause is caught still turns on its wording and the legislation in the state or territory. Maxcon itself was decided on the South Australian provision.
If your release clause is hooked to the head contract, the money is not something you wait for. It is something you claim. The statutory process for doing that is set out further down this page, and the mechanics of building the claim itself are covered in the progress claim lender read.
There is a second consequence that almost nobody joins up. A retention balance with no reliable release date is a poor thing to fund against, because a lender cannot price a debt that has no due date. A retention balance whose release clause is void, and which is therefore claimable now, is a different asset entirely. That distinction is the whole of the lender read further down.
What is the defects liability period, and what does it oblige you to do?
A defects liability period is the window, running from practical completion, in which you must come back and fix defects in your own work at your own cost, and it is defined by your contract rather than by any statute. The Western Australian security of payment Act puts it precisely: the period "starts on the day of the practical completion of construction work under the contract" and "ends on the last day that any omission or defect in the construction work may be required or directed to be rectified under the contract and written law".
Basis: Building and Construction Industry (Security of Payment) Act 2021 (WA) s 23(1), official version 00-e0-00, as at 1 February 2024. Qualifier: this is a Western Australian definition, but it describes the general position, that the end date comes from the contract.That definition is doing more work than it looks. Because the end date is set by the contract, no Australian jurisdiction was identified that legislates a mandatory defects liability period length for commercial construction. Your annexure decides how long your money is held, which is why item 27 is worth reading before you sign and not after.
What the period obliges you to do is narrower than most subcontractors assume, and broader than most principals concede. It obliges you to rectify defects and omissions in the work you carried out, on direction, within the period, at your cost. It does not oblige you to improve the work beyond the specification, and it does not turn you into a maintenance contractor for fair wear and tear. It also runs from practical completion, not from your last day on site, so on a job where you finish your package early the clock on your money may not start for months.
Whether rectifying a defect restarts the period for that item is a separate question, and it is the reason a great many contractors are still waiting after the headline twelve months is up. It has its own section below.
Can the defects liability period restart after you fix a defect?
For the item you rectified, in many contracts yes. A common drafting pattern gives a rectified item a fresh defects liability period of the same length, running from the date of the repair rather than from the original practical completion, which means a defect fixed late in the period can carry a liability period that outlives the headline expiry date. No statute imposes this. It is in the contract or it is not.
That single clause is the difference between a wait you can plan around and a wait you cannot. If it applies, the last defect you attend to sets the clock for the retention attached to it, so a job you finished two years ago can still be holding money because of a tap you went back for in month eleven.
What to look for in your own contract
- Whether the defects liability clause creates a further or fresh period for rectified work, and whether that further period is the same length as the original
- Whether the further period runs from completion of the rectification or from the original date of practical completion
- Whether the further period applies only to the rectified item or restarts the whole period
- Whether release of security is tied to the expiry of the original period or to the expiry of any further period
- Whether a final certificate, rather than the expiry of a period, is the actual release trigger
The last two are where the money is. A contract can carry a twelve month period and still hold your retention indefinitely if release is hooked to a final certificate that nobody is in a hurry to issue. Where that certificate depends on something under the head contract rather than on your own works, read the pay when paid section above, because that hook may not be enforceable.
A note on the standard form
This page cites AS 4000-1997 in several places, which remains the edition governing a great many contracts already on foot. Standards Australia published a revised edition, AS 4000:2025, on 30 June 2025, the first substantial revision in 28 years. If your contract was executed after that date, check which edition it incorporates before relying on any annexure item reference on this page.
Basis: Standards Australia, publication of AS 4000:2025, 30 June 2025. Scope: this page has verified that the 2025 edition exists and supersedes the 1997 edition. It has not verified the 2025 edition’s annexure numbering or its defects liability default, because the standard is not publicly readable. Qualifier: treat every AS 4000-1997 reference on this page as applying to contracts that incorporate the 1997 edition, and read your own contract for anything else.A period that can extend is also a funding problem rather than only a paperwork one. A lender assessing a retention receivable looks first at whether the release date is defined, which is covered in the invoice finance guide and in the lender read further down this page.
What is the difference between a defects liability period and a warranty period?
They are not two names for the same thing, and the expiry of one does not end the other. A defects liability period is a term of your contract, runs from practical completion, obliges the contractor to return and fix, is backed by retention, and is enforced under the contract. A statutory warranty is set by legislation, exists whether or not the contract mentions it, cannot be contracted out of, runs from completion of the work, gives the owner a right to sue, and is enforced in a court or tribunal.
They overlap rather than replace each other. When your defects liability period expires and your retention is released, your liability for the work has not ended, it has simply stopped being secured by your money and started being a matter for the general law. And there is a scope difference that is easy to miss: statutory warranties are a residential regime. Commercial construction has no legislated warranty period of that kind, only the contract's defects liability period and general limitations law. Practical completion, the trigger for the first of these, is covered in the practical completion glossary entry.
| Feature | Defects liability period | Statutory warranty |
|---|---|---|
| What sets it | The contract | Legislation |
| Who it protects | The principal | The owner |
| When it starts | Practical completion | Completion of the work |
| How long | Whatever the contract says. Queensland defaults to 12 months where the contract is silent. AS 4000-1997 defaults to 12 months where the annexure is blank | NSW 6 years major defect and 2 years otherwise. VIC 10 years, no split. QLD implied warranties on domestic building contracts, with the regulator able to direct rectification up to 6 years and 6 months after the work was completed. WA 6 years, no split |
| How it is enforced | Under the contract | Court or tribunal |
| Who it applies to | Commercial and residential, as the contract provides | Residential building work only, in all four states |
Sources and as-of dates: Home Building Act 1989 (NSW) s 18E, with warranties implied into residential building contracts by s 18B. Consumer Affairs Victoria, 9 July 2025, for the 10 year Building Act 1993 window in the domestic building context. QBCC, 12 December 2025, for the 6 years and 6 months direction to rectify, with the implied warranties themselves sitting in Schedule 1B of the Queensland Building and Construction Commission Act 1991 and applying to domestic building contracts. Government of Western Australia, October 2025, for the 6 year insurance-framed cover on residential building work. Qualifier: Victoria and Western Australia do not have a New South Wales style major and non-structural split, and Queensland's separate power to direct rectification is a regulatory power over building work, not an implied warranty, so it can reach commercial work once the contract has ended.
Is your retention money held in trust, and does that depend on your state?
Yes, it depends almost entirely on your state, and the spread is wider than any other question on this page. Three jurisdictions require a trust account, one implies a bare trust as a default term, and four have no statutory retention trust at all. The same subcontract, the same retention, different protection.
| Jurisdiction | Trust scheme | What triggers it | What the beneficiary gets | Penalty |
|---|---|---|---|---|
| NSW | Yes, trust account | Head contract for projects valued over $20 million | Withdrawal restricted to the contract terms, plus a per subcontractor ledger at least every 3 months | Fines of up to $22,000 |
| QLD | Yes, trust account | Derivative of a project trust, no retention specific threshold | Balance, transactions and trust records within 10 business days on written request, plus notices on opening, deposit and every withdrawal | 200 penalty units or 1 year imprisonment |
| WA | Yes, trust account | Contract of $20,000 or more including GST | Inspection of the trust records without charge | $50,000 individual, $250,000 corporation |
| NT | No trust account. Bare trust implied by statute | Only where the contract has no written provision on the status of retained amounts | The principal holds the money on trust for the contractor. No account, records, notices or penalty | None |
| VIC | No | Not applicable | Regulated instead as performance security under the Security of Payment Act | Not applicable |
| SA | No | Not applicable | Contract only | Not applicable |
| TAS | No | Not applicable | Contract only | Not applicable |
| ACT | No | Not applicable | Contract only | Not applicable |
Sources and as-of dates: NSW Government, 26 August 2025. QBCC trustee and beneficiary guides, April 2025, and Queensland Department of Housing and Public Works, 10 February 2025. Government of Western Australia retention trust scheme fact sheet, parent publication page 25 November 2024. Construction Contracts (Security of Payments) Act 2004 (NT) s 24 and Schedule 1 Division 9 clause 10, as in force at 25 May 2024. Victoria, South Australia, Tasmania and the ACT verified by reading each security of payment Act and each government guidance page: Building and Plumbing Commission Victoria, 30 June 2026; South Australian legislation, Act currency 10 December 2011; Tasmanian legislation, version current from 1 July 2025; ACT legislation, republication R14 effective 6 December 2025. Qualifier: these absences are scoped to each jurisdiction's security of payment framework, which is what this table compares, and the ACT has flagged a review of its security of payment laws, so re-check at the next refresh. Penalty units are not converted to dollars because the dollar value moves each financial year.
Two figures in that table sit on the same instrument and are a thousandfold apart. Western Australia catches a contract of $20,000 or more including GST. New South Wales catches a head contract for a project valued over $20 million. A subcontractor doing identical work on identical retention terms is inside a statutory trust in Perth and outside one in Sydney unless the head contract is very large indeed. Neither scheme is retrospective in the way contractors hope: the Western Australian fact sheet states the thresholds do not apply to contracts entered into before the relevant phase commenced even if the value later exceeds the threshold.
The beneficiary's position
A trust is only worth what the beneficiary can actually do with it, and this is where the three trust states stop looking alike. Do not read them as one regime.
- Western Australia gives you an information right you can exercise yourself. The fact sheet states the beneficiary is entitled, without charge, to inspect the trust records and take copies on reasonable notice. The maximum fines of $50,000 for an individual and $250,000 for a corporation attach to two specific breaches, failing to pay retention into the trust account and denying that inspection right, not to breaches at large.
- Queensland goes further and adds a push. On a written request the trustee must provide a statement of balance, a copy of the transactions and a copy of the trust records within 10 business days, and separately beneficiaries must be given notice every time an amount held on their behalf is withdrawn, generally within 5 business days for most retention trust notices. The information right is qualified and may be declined for a reasonable excuse, where the material has already been provided, or where nothing has changed.
- New South Wales gives you a restriction, not an information right. Withdrawal is restricted to the contract terms and a per subcontractor ledger must be provided at least every 3 months. That protects the money from being spent, but it does not put the trust records in your hands on demand.
How do you check if your Queensland retention is actually in a trust account?
Start with the trust notice, then check the public QBCC Trust Account Register. Where a retention trust is required, the trustee must notify the subcontractor beneficiary before withholding the retention amount and provide the required trust-account information. QBCC also publishes details of existing trust accounts in its public register. If you cannot match your notice to a registered account, first confirm that your contract is actually within the trust regime rather than assuming the absence itself proves a breach.
Basis: QBCC, Required trust notices, and the QBCC Trust Account Register. Scope: Queensland retention trusts only. Qualifier: not every construction contract triggers a retention trust, so the register is a verification tool after scope is checked, not a substitute for the scope test.Queensland's trigger is the odd one out in a way that catches people. There is no retention specific dollar threshold in Queensland at all. The retention trust duty is derivative: it attaches where cash retention is withheld under a contract that either is, or sits under, a contract requiring a project trust. Project trusts currently apply to eligible Queensland Government contracts of $1 million or more and to private sector, local government, statutory authority and government owned corporation contracts of $10 million or more, and further rollout below $10 million is paused. Where the cash on a job is stuck and why is mapped in the builder finance map.
What happens to your retention if the head contractor goes into administration or liquidation?
It turns on one question: whether a statutory retention trust applied to your contract, and whether the head contractor actually complied with it. Where retention was properly held in a statutory trust account, it is trust money rather than the head contractor’s own money. Where no trust applied, or where one applied and was ignored, you are an unsecured creditor for that amount and you join the queue.
That is the whole reason the trust table above matters, and it is why the state your job was in stops being a piece of trivia the moment a head contractor stops answering the phone. New South Wales says so plainly: the retention trust requirements exist to protect subcontractors’ retention money, including where a construction company becomes insolvent.
Basis: NSW Government, retention money held by head contractors. Scope: the New South Wales scheme, which is triggered by project value. Qualifier: a trust protects the money only where the scheme applied to that contract and the head contractor complied with it. Compliance is not something you can assume; it is something the administrator or liquidator will establish.The two things that are time-sensitive
The first is finding out which regime your contract sat under, because that determines whether you are chasing trust money or lodging as an ordinary creditor, and those are different conversations with the external administrator. Start from the trust table above and your contract date.
The second is the creditor process itself, which runs to deadlines that do not wait for you. In a liquidation, the liquidator must give creditors at least 14 days’ notice of the deadline for lodging a proof of debt, and that notice goes to each person claiming to be a creditor.
Basis: ASIC, Liquidation: a guide for creditors, and ASIC, Voluntary administration: a guide for creditors. Scope: the Commonwealth insolvency process, which runs alongside and not instead of your state’s security of payment regime. Qualifier: voluntary administration and liquidation are different processes with different timetables, and the notice you receive governs your deadline, not any general figure.Where to go, and where not to
This is the point on this page where the honest answer is that a finance broker is not the person you need first. A retention claim against an insolvent head contractor is work for a solicitor with construction insolvency experience, and the external administrator’s notices are the timetable you work to. Nothing on this page changes that, and no funding product recovers money from a liquidation.
What a broker can be useful for is the other half of the problem, which is that the business still has to trade while all of that plays out. A retention balance owed by an insolvent party is not security anybody will lend against, so if a facility is the answer it will be secured against something else entirely, which is set out in the funding section below and in the builder finance map. This page states no view on how likely recovery is in any particular administration, because that depends on the trust position, the asset pool and the conduct of a company nobody here has seen.
Can the NSW Security of Payment claim window close before retention is due?
Yes. In New South Wales, the Security of Payment payment-claim pathway can close before the contractual retention release date. That does not by itself extinguish the underlying contractual right: section 32 preserves rights under the construction contract and civil proceedings outside the statutory adjudication process. The risk is losing the faster statutory route, not automatically losing the money.
The mechanics, in order:
- You finish your work on site. That is the moment the New South Wales claim window starts counting.
- Practical completion is certified, some months later, and half your retention is released. The defects liability period starts here, not at your last day on site.
- The defects liability period runs its twelve months. Your remaining retention becomes contractually due at the end of it.
- By then, more than twelve months have passed since your work was carried out. The New South Wales regulator states that only work completed in the past 12 months can be claimed, the latest time being under the terms of the contract or within the last 12 months, whichever is the later.
Queensland saw the problem and legislated around it. A final payment claim there can be given by the date specified in the contract, or 28 calendar days after the end of the last defects liability period, or 6 months after completion of all the construction work, with the longer timeframe applying. The defects liability limb applies only to a final claim; ordinary progress claims get the 6 month rule alone.
Basis: QBCC Contractor's Guide to Payments, April 2022. Qualifier: it is the longer timeframe that applies, not the shorter, and the defects liability limb is available only on a final claim.Victoria moved in the same direction from 15 April 2026 without going as far. The latest time a payment claim can be served is now the later of the time specified in the contract, or 6 months after practical completion of all construction work, or 6 months after the supply of all related goods and services, extended from the previous 3 month period. Note the trigger: practical completion of all work under the contract, not the claimant's last day on site.
Basis: Building and Plumbing Commission Victoria, as at 30 June 2026. Qualifier: six months is a floor because the test is the later of, and the amended Act applies to contracts entered before 15 April 2026 except where the transitional provisions carve them out, which they do for a payment claim served before that date and for an adjudication application made but not determined before it.Three jurisdictions, three genuinely different answers, and no safe average between them. If your retention sits on a New South Wales job with a long defects liability period, the date to diarise is not the release date. A short paid claim and the exit options around it are worked through in the short paid progress claim exit.
Can you swap cash retention for a bank guarantee or a bond?
In Western Australia you have a statutory right to force the swap. Everywhere else you need the principal to agree, because substitution is a matter of contract and the standard forms leave approval of both the instrument and the issuer to the principal's discretion.
The Western Australian exception runs through the payment claim process rather than through negotiation. Under the Building and Construction Industry (Security of Payment) Act 2021 (WA), a party that has provided retention money may claim the release of that money in substitution for a compliant performance bond, and an adjudicator may determine that the substitution occur. The bond has to satisfy section 60, which requires it to be unconditional, non-expiring and wholly irrevocable, and the payment claim seeking substitution must attach a draft of the proposed bond.
Basis: Building and Construction Industry (Security of Payment) Act 2021 (WA), Part 3 Division 6 and s 60, the substitution right commencing 1 February 2024 as part of Phase 3 of the Western Australian reforms. Qualifier: the right attaches to construction contracts to which the Act applies, so the Act's own exclusions govern before the right does. No equivalent statutory right to substitute was located in New South Wales, Queensland, Victoria, South Australia or the ACT, which is a negative finding from targeted searching rather than an exhaustive audit.
What the swap quietly costs you
In Western Australia, exercising that right costs you the statutory trust protection, because the trust follows the cash and not the security. The retention trust scheme fact sheet states that the scheme "applies only where retention money is taken under the contract, and does not affect other common forms of security used in the industry such as performance bonds (for example bank guarantees)". So agreeing to replace cash retention with a guarantee removes the trust that was sitting over that money.
Basis: Government of Western Australia retention trust scheme fact sheet, parent publication page 25 November 2024. Qualifier: the same fact sheet closes the obvious workaround from the other side, stating that retention money is still retention money for the purposes of the scheme if it is called by another name, for example a "hold back". Renaming does not exit the scheme; genuinely replacing the cash with a guarantee does.A guarantee also does not free the money up, which is the part contractors most often get wrong. It does not move cash to the principal, it commits it. You obtain one either by lodging cash cover or by drawing on a facility limit, so the amount is immobilised rather than released, and it stays immobilised until the instrument is returned. Whether that is a better position than cash retention depends on which you would rather have tied up, your own cash or your facility headroom. How these instruments are used on civil work is set out in the performance bonds and bank guarantees guide.
| Form of security | Who holds the value | Who issues it | What the contractor puts up | Statutory trust protection |
|---|---|---|---|---|
| Cash retention | The principal or head contractor | Not applicable, deducted from payments | The cash itself, withheld from progress payments | Yes, in NSW, QLD and WA, subject to each scheme's trigger |
| Bank guarantee | The contractor's bank, on an unconditional promise to pay on demand | A bank | Cash cover or a facility limit | No |
| Insurance bond | The insurer, on the same on demand terms | An insurer | Varies by underwriter | No |
Sources and as-of dates: Government of Western Australia retention trust scheme fact sheet, parent publication page 25 November 2024, for the trust protection column and the exclusion of bank guarantees. ACT Government NCW4 explanatory notes, August 2019, for the absence of any right to substitute. Qualifier: an insurance bond is issued by an insurer, and insurers carrying on insurance business in Australia must be authorised by APRA under the Insurance Act 1973. No price, rate, fee or premium appears in this table because those figures are specific to your own facility.
If a call is made on an unconditional instrument, that is a matter to take to a solicitor immediately and not a matter to work out from a web page. The law on when a call can be resisted is narrow, turns heavily on the exact words of the particular contract, and the authorities on it concern bank guarantees rather than insurance or surety bonds. This guide states no position on it in either direction.
What funding options exist to bridge the retention gap?
Four security positions are commonly used, and every one of them is secured against something other than the retention itself: a caveat over property you own, a registered first or second mortgage, invoice finance against invoices already issued and payable, or a general security interest over business assets. A retention balance is a poor primary security in itself because it is conditional, it has no reliable end date, and it can be reduced by a defect claim. So the funding that works against a retention position is usually secured against something else on your balance sheet, with the retention explaining the need rather than providing the cover.
What a lender can take security over
- Real property you own, by caveat, which is what a caveat loan is secured against
- Real property, by a registered first or second mortgage
- Unconditional invoices already issued and payable, under receivables or invoice finance
- Business assets generally, by a registered security interest
What a retention balance alone will not carry
- It is conditional until the defects liability period ends, so it is not yet an unconditional debt
- Where the period has no defined end date, there is no defined repayment date
- A contested defect can reduce or extinguish the balance entirely
- Set off rights in the head contract can absorb it before it reaches you
Nothing in this section carries a figure, and that is deliberate rather than an omission. The cost of a facility, the size of an advance, how quickly funds land and how likely an approval is are all figures about your own borrowing outcome, and they depend on your security, your trading position and the lender's policy on the day. Any page quoting them as general facts is quoting marketing.
For orientation only, and then this page defers: a caveat loan is a short term facility secured by a caveat over property you own, and a second mortgage is a registered security ranking behind an existing first mortgage. Invoice finance works against invoices already issued and payable rather than against a conditional retention balance. Where the lender is not a bank, the structure and the assessment differ again, which is covered under private lending.
What does a lender look at when the security is a retention receivable?
A lender runs two separate assessments on a retention receivable: how certain the money is, and how a security interest over it can actually be taken. A strong answer on one does not rescue a weak answer on the other.
What strengthens the read
- A head contract with a solvent, identifiable principal and clear release terms
- Retention sitting in a statutory trust account rather than in the head contractor's working capital
- A defects liability period with a defined end date on the face of the contract
- A final claim already served and a payment schedule already responded to
What weakens it
- An open ended or undefined defects liability period
- A live defect dispute or an unresolved direction to rectify
- Broad set off rights in favour of the principal
- No statutory trust in the jurisdiction and no visibility over where the money sits
How the security is actually taken
A construction receivable answers the definition of an "account" under the Personal Property Securities Act, which covers a monetary obligation arising from granting a right or providing services in the ordinary course of a business of that kind, and expressly excludes an ADI account. The Act also treats the interest of a transferee under a transfer of an account as a security interest whether or not the transaction, in substance, secures payment or performance of an obligation, which is what makes an outright sale of a receivable a personal property securities transaction rather than a plain sale.
Basis: Personal Property Securities Act 2009 (Cth) ss 10, 12(3)(a) and 21(2)(a), Compilation No. 22, compilation date 14 October 2024. Qualifier: an account is not in the control list at s 21(2)(c) and cannot be possessed, so registration is the only perfection route available for a receivable. That is an inference from the quoted provisions, not a quotation. Note also that once money is sitting in a bank account it is an ADI account and outside the definition of an account entirely.Perfection matters because a perfected security interest ranks ahead of an unperfected one in the same collateral, which the Personal Property Securities Register states in plain language. In practice that is why a lender funding against a receivable registers, and why an unregistered assignment is worth less than the paper it is written on if the grantor fails.
One question this page will not resolve. The Act contains a provision, s 81, dealing with contractual restrictions and prohibitions on the transfer of an account, and whether an unpaid progress claim or a retention balance falls inside or outside its operation is a question of statutory construction on your particular contract. "Construction contract" is not a defined term in the Act's dictionary. That is a solicitor's question, and this guide does not answer it. How a retention position reads when it is your income rather than your security is covered in the one doc home loan civil contractor guide, and the short term secured route is set out under caveat loans.
From our broking, indicative
What we see most often when a retention position comes across the desk is that the paperwork, not the amount, decides the outcome. The files that move are the ones where the head contract is identifiable, the release trigger is written down, and the final claim has already been served and scheduled. The files that stall are the ones where the defects liability period has no stated end, where a rectification direction is live, or where the contractor cannot say which entity is holding the money.
- Where a statutory trust applies, being able to point to the trust account and the ledger changes the conversation from an assertion to a document.
- Where no trust applies, the retention is an unsecured position against the head contractor, and the read shifts to the head contractor's own standing.
- In almost every case the facility that ends up being written is secured against something other than the retention, with the retention explaining the timing rather than providing the security.
Qualitative only. This describes patterns we see in deals we have placed. It is not a quote, not an offer, not an approval likelihood and not a statement about your own position. Actual terms depend on lender policy and your circumstances at the time of application. Not financial advice.
Do you pay GST on retention before you receive it?
Generally no, and the answer is better than the question implies, because a specific determination defers attribution of the GST on the retention slice until that slice is invoiced or received after the defects liability period. Three separate clocks run over a retention balance, they run at different speeds, and conflating them is where the trouble starts.
Three clocks on the same money
On the GST clock, the general rule still runs alongside the determination and is not replaced by it. On an accruals basis you account for GST on a sale in the reporting period in which you issue a tax invoice or receive full or part payment, whichever happens first. The determination defers only the retention part.
Basis: Australian Taxation Office, as at 17 December 2019, for the general attribution rule; and the determination at F2017L00344 for the retention specific rule. Qualifier: these sit alongside each other and must not be merged. Your accountant should confirm which applies to your accounting basis.The accounting clock has a second limb that cuts both ways and must not be presented on its own. Where the timing of payments provides a significant benefit of financing, AASB 15 requires an adjustment for the time value of money, and there is a practical expedient in paragraph 63 for cases where the entity expects at contract inception that the period between transfer and payment will be one year or less. But paragraph 62(c) points the other way, providing that there is no financing component where the difference arises for reasons other than the provision of finance, giving as its own example payment terms that provide protection from the other party failing to adequately complete its obligations, which is exactly what retention is for. Present both limbs or present neither. Note too that the expedient measures the period from transfer to payment assessed at contract inception, not the length of the defects liability period.
Whether interest on borrowings taken to bridge the retention gap is deductible is a question for your accountant, and this page states no figure, rate or computed benefit on it. The cashflow shape around progress claims is set out in the progress claim cashflow guide. On all three clocks, take your own position to your accountant. Nothing here is a statement about your circumstances.
What should you do before your retention release date arrives?
Work backwards from the expected release date instead of waiting for it to pass. The useful file is not just an invoice. It is a short evidence pack showing when the money should be released, what defects remain open, where the cash is held and whether the statutory claim route will still be available when the amount falls due.
Pre-release retention check
This is a preparation checklist, not a statement that every item is a statutory precondition in every state. The contract determines the release entitlement and each state or territory has its own claim process. Use the state-specific sections on this page and obtain construction-law advice where the entitlement or defect position is disputed.
What can you do if your retention is not released?
Start with the deadline, not the argument. Every Australian jurisdiction has a statutory payment or adjudication route for construction disputes, but the clock that keeps that route open is not the same. Identify the state or territory, identify whether you are claiming a progress payment, final payment or release of performance security, then work forward from the exact statutory trigger. If the statutory route is already closed, that does not automatically erase the underlying contract debt; it changes the recovery route and is a point for a construction solicitor.
Can the builder deduct backcharges or another job from your retention?
Do not treat every “backcharge” as the same thing. A deduction for an alleged defect, rectification cost or other liability under the same construction contract depends on that contract and the law applying to it. A set-off for money said to be owed under a completely different contract is a separate question. In Western Australia, where the statutory retention-money trust regime applies, section 72(2) expressly says the holder is not entitled to set off a liability under another contract against retention money that is to be released.
| Jurisdiction | Statutory route for retention | Latest claim point | What makes it different |
|---|---|---|---|
| New South Wales | A payment claim may include an amount held under the construction contract that you claim is due for release. | The later of the period set by the contract and 12 months after the construction work to which the claim relates was last carried out, or the related goods and services were last supplied. | A long defects liability period can put the contractual release date beyond the 12-month work clock. That can close the Security of Payment route before retention falls due, although the Act preserves contractual and civil rights outside that statutory process. |
| Queensland | Retention can be claimed through the payment-claim regime when it forms part of the amount due, including a final payment claim. A separate subcontractor-charge route may also be available. | A final payment claim must be given before the latest of the contractual date, 28 days after the last defects liability period ends, six months after all construction work is completed, or six months after all related goods and services are supplied. | The final-payment classification matters. Separately, QBCC says a subcontractor's charge for retention monies must be lodged no later than three months after the defects liability period expires. |
| Victoria | Since 15 April 2026, retention money is a performance security and has its own performance-security claim route under the Security of Payment Act. | A performance-security claim can first be served at the contractual event or 20 business days after the relevant defects liability period ends, whichever is earlier. The latest time to serve is the later of the contractual day and the last day of the month following the month in which the last defects liability period ends. | Release is capped at 20 business days after a compliant performance-security claim. The respondent generally has 10 business days, or a shorter contractual period, to serve a performance-security schedule. |
| Western Australia | The payment-claim provisions extend to claims for release of retention money or other performance security, and to substitution of performance security. | For a final payment, the latest of the contractual date, 28 days after the last defects liability period, six months after all work is completed, or six months after all related goods and services are supplied. | WA also has the statutory retention-money trust regime and the express s 72(2) prohibition on setting off a liability under another contract against retention due for release. |
| South Australia | A payment claim may include cash security or retention money that is held under the contract and claimed to be due for release. | The later of the period determined by the construction contract and six months after the relevant construction work was last carried out or related goods and services were last supplied. | SA still uses reference dates. The Small Business Commission states that a respondent generally has 15 business days after receipt of the payment claim, or a shorter contractual period, to serve a payment schedule or pay in full. |
| Tasmania | Section 17 expressly allows a payment claim to include money held under the contract “as security or otherwise” that is claimed to be due for release. | The later of the contractual period and 12 months after the relevant work was last carried out or related goods and services were last supplied. | The legislation says this directly rather than requiring retention to be inferred from the general payment-claim wording. |
| Australian Capital Territory | A payment claim may include an amount held under the construction contract that is claimed to be due for release. | The later of the contractual period and 12 months after the relevant construction work was last carried out or related goods and services were last supplied. | The ACT's March 2024 reforms changed monthly claim mechanics and payment terms but the ACT Government says they did not change the latest point at which a payment claim can be made. The current Act is R14, effective 6 December 2025. |
| Northern Territory | The NT uses a construction-dispute adjudication model rather than the east-coast payment-claim model. Retention money not paid when due is expressly treated as a construction dispute. | An adjudication application must be made within 65 working days from the date the payment dispute arose. | The trigger is the payment dispute, not a universal number of months from the last work. If the contract is silent or invalid on certain matters, the NT Act also supplies implied provisions, including provisions dealing with retention money. |
Primary and regulator sources: NSW Security of Payment Act, s 13; QBCC payment-claim guidance and QBCC subcontractors' charges; Building and Plumbing Commission Victoria; WA Security of Payment Act; SA Security of Payment Act; Tasmanian Security of Payment Act; ACT Security of Payment Act; and NT Construction Contracts Registrar guidance. These are different statutory routes; the table is a deadline map, not a substitute for checking service, schedule and adjudication requirements for the particular claim.
What should you do once you know your deadline?
- Identify the route. Decide whether the amount is being claimed as a payment/final payment, a release of performance security, or an NT construction dispute. Do not copy another state's form or deadline.
- Serve the claim correctly and keep proof of service. A commercially obvious invoice is not useful if it misses a statutory requirement or cannot be proved to have been served.
- Diarise the response and payment/release clocks on the same day. Payment-schedule, performance-security-schedule and adjudication periods can be measured in business or working days and can include special Christmas exclusions.
- If the respondent does not pay, release or schedule the amount, check whether a second-chance notice is required before adjudication. Several regimes have a notice step where no schedule was served. Missing it can waste a claim that was otherwise in time.
- If the statutory window is closed, change route rather than assuming the debt disappeared. Security of payment legislation gives a fast interim recovery mechanism. Contractual rights, court proceedings and other remedies can sit outside it, but what survives in a particular dispute is legal advice territory.
Victoria carries one further distinction worth keeping separate. Since 15 April 2026 a claimant can make a performance-security claim for retention release, while a party wanting recourse to performance security must first serve a written notice identifying the contract, the provision relied on and the circumstances said to justify recourse, then wait at least 5 business days or any longer contractual period before having recourse.
Where to go, and where not to
Route to the building regulator or statutory adjudication system for your jurisdiction, and be careful with small business commissioners because they do not all perform the same role. South Australia's Small Business Commission, for example, publishes Security of Payment guidance and can help construction businesses understand dispute options; Queensland's Small Business Commissioner has a much narrower mediation jurisdiction, so a Queensland retention-payment dispute usually routes through QBCC or the construction-law process instead.
AFCA has no role in a builder-to-principal or subcontractor-to-builder retention dispute. AFCA is relevant only where the complaint is about a financial firm that is an AFCA member, for example a lender or broker involved in finance you obtained to bridge the cashflow gap.
One further avenue, and only a court can operate it. The strengthened unfair contract terms regime commenced on 9 November 2023 and can reach a standard form small business contract, with the small business test being fewer than 100 employees or under $10 million in annual turnover, either limb qualifying. A term found unfair is void, but only a court makes that declaration.
Basis: ACCC, as at 21 July 2026, for the unfair contract terms regime; South Australian Small Business Commission, NSW Small Business Commission and Queensland Small Business Commissioner for jurisdiction-specific support; AFCA for financial-firm complaint scope. Qualifier: regulators and small-business bodies are not substitutes for legal advice on whether a retention clause, set-off or defects claim is enforceable.If the problem is that the funder behind the project has stepped away rather than that the head contractor is slow, that is a different problem with a different sequence, set out in what to do when a construction funder withdraws mid build.
Retention is a contract entitlement sitting inside eight different state and territory payment regimes. The release date, defects position, trust protection and statutory claim deadline are separate clocks. A builder saying “defects” or “backcharges” also does not answer whether the alleged liability arises under this contract or another one. If the money is overdue or disputed, treat it as a recovery problem first and use the jurisdiction table before the deadline passes. If it is validly locked up and the problem is working capital, that is when finance becomes relevant.
Key takeaway: do not wait for the release date to discover the claim deadline, trust position or unresolved defect list. Build the file before the money is due.Frequently Asked Questions
Retention is calculated as a percentage deducted from each progress payment, and the percentage comes from your contract unless you are in Queensland. The Queensland regulator states that, generally, the retention or security withheld must not exceed 5 per cent of the contract price before practical completion, 2.5 per cent after it, and no more than 10 per cent of cash retentions may be withheld from any one progress payment. Those are Queensland figures on commercial building contracts and subcontracts, not domestic contracts, published in the QBCC Contractor's Guide to Payments dated April 2022. In every other jurisdiction the percentage is a matter of contract and no statutory ceiling was identified, as set out in the retention glossary entry.
Cash retention works by the principal or head contractor deducting a slice of each progress payment and holding it as security for your performance, then releasing it in two moves. Conventionally about half is released at practical completion and the balance at the end of the defects liability period, so the money is out of your account for the whole of the build plus the whole of that period. Whether the money sits in a statutory trust while it is held depends entirely on your state.
You claim retention money the same way you claim any other amount owed, by serving a payment claim under your state's security of payment regime, and the timing is where contractors get caught. In New South Wales the regulator states that only work completed in the past 12 months can be claimed, measured under the terms of the contract or within the last 12 months, whichever is the later, as at 24 March 2026. Queensland is different: a final payment claim can be given by the date in the contract, 28 calendar days after the end of the last defects liability period, or 6 months after completion of all the work, whichever gives the longer timeframe.
Retention is released when the contract says it is released, and two states override a silent or slow contract. The Queensland regulator states that if a building contract does not specify a defects liability period then any retention amounts or security held must be released 12 months after practical completion, as at 20 February 2024. In Victoria, since 15 April 2026, a contract provision has no effect to the extent it provides for release of a performance security later than 20 business days after a performance security claim is served.
There is no legislated answer, because the defects liability period is a creature of contract. The Western Australian security of payment Act defines it as the period that starts on the day of practical completion and ends on the last day a defect may be required or directed to be rectified under the contract and written law, which puts the length in your annexure rather than in a statute. No Australian jurisdiction was identified that legislates a mandatory length for commercial construction. Two fallbacks exist: Queensland releases retention 12 months after practical completion where the contract is silent, and AS 4000-1997 defaults to 12 months where the annexure item is left blank.
A same-contract deduction for alleged defects, rectification costs or another liability depends on the construction contract and the law applying to it, so a builder saying “backcharge” does not by itself establish the amount can be kept. A liability under a different contract is a separate issue. In Western Australia, where the statutory retention-money trust regime applies, section 72(2) of the Building and Construction Industry (Security of Payment) Act 2021 says the holder cannot set off a liability under another contract against retention money that is due for release. Ask for the defect or liability alleged, the clause relied on, the amount withheld, the notice given and whether the alleged debt arises under this contract or another one.
The 12 month period people refer to is a fallback, not a standard. The Queensland regulator states that if a building contract does not specify a defects liability period then any retention amounts or security held must be released 12 months after practical completion, published as at 20 February 2024, and a contract that does specify a period governs instead. AS 4000-1997 carries a similar fallback at Annexure Part A item 27, which reads 12 months if nothing is stated, and in practice that annexure is almost always filled in.
There is no national answer. In New South Wales, interest earned on retention in a statutory trust account stays on the same trust and is dealt with accordingly unless the contract says otherwise or the parties agree otherwise in writing. Western Australia is different: interest attributable to the period before the money is due for release belongs to the party operating the account, while interest attributable to the period after the money should have been released is payable to the other party, subject to the statutory offset against late-payment interest. Check the rule for the state governing your contract rather than applying either model nationally.
Basis: Building and Construction Industry Security of Payment Regulation 2020 (NSW) cl 11; Building and Construction Industry (Security of Payment) Act 2021 (WA) s 78. These are two different statutory models, not a national rule.
The difference is who is holding the value and what protects it. Cash retention is your money, deducted from progress payments and held by the principal or head contractor, and in New South Wales, Queensland and Western Australia it may sit in a statutory trust account subject to each scheme's trigger. A bank guarantee is an unconditional promise by your bank to pay on demand, backed by cash cover or a facility limit you provide, and the Western Australian fact sheet states that the retention trust scheme applies only where retention money is taken and does not affect other common forms of security such as bank guarantees. So the guarantee route removes the statutory trust protection that was sitting over the cash, as set out in the performance bonds and bank guarantees guide.
In Western Australia a party that has provided retention money has a statutory right to claim its release in substitution for a compliant performance bond, so there a bond can be forced rather than negotiated. Everywhere else the principal must agree, because no equivalent statutory right was located, and approval of both the instrument and the issuer is left to the principal's discretion under the standard forms. An insurance bond is issued by an insurer, and insurers carrying on insurance business in Australia must be authorised by APRA under the Insurance Act 1973. Like a bank guarantee, it sits outside the Western Australian retention trust scheme.
Generally no. A clause tying release of your retention to an event under the head contract, such as the head contract reaching practical completion or a certificate of occupancy being issued, is a pay when paid provision, and pay when paid provisions have no effect under the security of payment legislation in every Australian jurisdiction. The High Court took that view in Maxcon Constructions Pty Ltd v Vadasz [2018] HCA 5, decided on section 12 of the South Australian Act, where release of a subcontractor’s retention was hooked to a certificate of occupancy for the development. The wording of the prohibition differs between Acts, so whether a particular clause is caught is a question for a solicitor rather than a general rule.
It depends on whether a statutory retention trust applied to the contract and whether the head contractor complied with it. Retention properly held in a statutory trust account is trust money rather than the contractor’s own money. Where no trust applied, or one applied and was not complied with, the retention is an unsecured claim and you lodge with the external administrator like any other creditor. In a liquidation, ASIC states the liquidator must give creditors at least 14 days’ notice of the deadline for lodging a proof of debt. Four Australian jurisdictions have no statutory retention trust at all, so the state the work was performed in changes the answer.
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