Retention in Practice: A Worked Example of What It Protects

A numerical look at how retention works across handover and the defects period, and what happens to an owner who released it early.

Retention is a small percentage that feels like an administrative detail during negotiation and becomes the only leverage you have after handover. This example follows the mechanism through a project and then repeats it without retention, which is the more instructive half.

The situation

A villa is built under a contract worth SAR 1,200,000 with a retention of five per cent, released in two stages: half at handover and half at the end of a twelve month defects liability period. After the first rainy season, a roof leak appears above a bedroom.

Assumptions (illustrative)

• Contract value: SAR 1,200,000.
• Retention: 5 per cent of certified work.
• Release: 50 per cent at handover, 50 per cent at the end of the defects period.
• Defects liability period: 12 months.
• Assumed cost of the remedial waterproofing and internal repair: SAR 22,000.

Step 1: Retention accumulated

5 per cent of SAR 1,200,000 equals SAR 60,000 withheld across the certificates.

This is not an extra payment. It is part of the contract value held back, and the contractor priced the contract knowing it would be.

Step 2: Release at handover

Half of SAR 60,000 equals SAR 30,000 released at handover, leaving SAR 30,000 held.

The remaining balance is what keeps the contractor responsive during the period when concealed defects emerge.

Step 3: The defect appears

Remedial work assumed at SAR 22,000, against SAR 30,000 still held.

The held balance exceeds the cost of the remedy, which is what gives the request to return its weight. The contractor attends because the balance is larger than the cost of attending.

Step 4: The same project without retention

With the full SAR 60,000 already released, the owner is asking for SAR 22,000 of work to be performed for free, eight months after final payment.

Nothing about the defect changed. What changed is that the request now depends entirely on goodwill and on the contractor having capacity to spare.

Step 5: Release at the end of the period

After the remedial work is verified, the remaining SAR 30,000 is released following an end-of-period inspection.

The inspection before release is the step most often skipped. Releasing on the calendar date without inspecting wastes the protection you paid to keep.

What changes the answer

• A larger defect, such as widespread waterproofing failure, can exceed the retained amount, which is why retention supplements good supervision rather than replacing it.
• A longer defects period covers a fuller weather cycle and therefore more failure modes.
• Releasing retention in one payment at handover removes the protection entirely at the moment it becomes relevant.
• A contractor in financial difficulty may prefer to forfeit retention rather than return, which is a limit worth understanding in advance.

What the numbers tell you

• Set the retention percentage and the release stages in the contract, not at handover.
• Keep a balance held through the defects period that is proportionate to the plausible cost of concealed defects.
• Inspect formally before releasing the final balance rather than letting the date pass.
• Treat retention as the backstop to supervision, not as a substitute for inspecting work while it is being built.

Limits of this example

Every figure above is an illustrative assumption used to show the method, not a quote, valuation or market rate. Costs, rates, fees and regulations change and must be confirmed with the relevant authority, lender or supplier before you commit.

If you are preparing to build, Domira can review your drawings, scope and contractor offers before you commit, and supervise delivery against the programme and specification you agreed.