A local authority as employer under a building contract may wish to retain a percentage (usually three per cent or five per cent) of certified payments to the building contractor to incentivise the contractor to finish the works and remedy any defects. The standard form building contracts all create a right for the employer to hold such retention.
Retention is released in two halves. The first half is released on practical completion. The JCT and NEC forms deal with the release of the second half in subtly different ways.
JCT provides for a fixed period after practical completion (usually six months or a year) during which time the contractor must rectify any defects notified to it (the Defects Liability Period or DLP). At the end of the DLP, if, but only if, all of the notified defects have been rectified a "certificate of making good defects" is issued. The issue of the certificate of making good defects triggers the release of the second half of the retention.
NEC3 also provides for a fixed period for the rectification of defects, ending on the "defects date", which is usually six months or a year after the completion date. At or shortly after the defects date, a "Defects Certificate" is issued which sets out any defects which the contractor has not corrected. The issue of the Defects Certificate triggers the release of the second half of retention. If there are outstanding defects noted on the Defects Certificate, the employer must serve a withholding notice in order to continue to hold the retention until all notified defects are rectified.