How long can retention be held?
Payment of Final Retention Amounts Defects liability periods tied to dates far in the future and the release of final retention amounts is another contentious often unreasonable condition of subcontracts.
Many subcontracts tie the release of final retention to an event in another contract, such as the release of retention or a certificate of completion of a main building contract that can be many months, if not years away from a subcontractor’s completion of its work.
In Queensland, the QBCC Act (s.67N), limits the amount of retention that can be held under a subcontract, after practical completion, to 2.5%. However there is nothing in the Act that regulates the release of final retention. It is governed by the contract.
In a recent decision (Maxcon v Vadasz), the High Court upheld an adjudicators decision that tying the payment of retention to an event that had nothing to do with the subcontractor’s performance was a “pay when paid” provision and was therefore void under the legislation.
For retention clauses to be effective this decision implies that a defects liability period and consequent final certificate and release of retention must be reasonably tied to the subcontractors performance under its subcontract.
The new Queensland Building Industry Fairness Act 2017 (s.278, ss.67NA) provides for a statutory defects liability period of 12 months if there is nothing in the contract. However, subsection 67NC(3) recognises that a defects liability period may be tied to the defects liability period for another building contract (i.e., the head contract). Given the High Court’s decision it may not be possible for contractors to tie a subcontractor’s defects liability period, and hence the release of final retention for payment, to an event in another contract.