Releasing Retention on a Saudi Build: When to Pay and When to Hold

Retention is the last money you hold and the only leverage left after handover. The sequence that gets defects fixed without turning into a dispute.

Retention is a percentage withheld from each payment and released in stages, typically part at completion and the balance at the end of the defects liability period. It exists so the contractor has a financial reason to return and fix what fails. Releasing it early removes that reason, and holding it without grounds turns a cooperative contractor into an adversary at exactly the wrong moment.

Before stage one

Before the first release question arises, be clear about three contract points: the percentage withheld, the events that trigger each release, and whether a bond may be substituted for cash. Owners who discover at completion that the contract allows a bond instead of retention have usually already lost the argument.

• The retention percentage and the cap, if any, stated in the contract.
• The two or more release points defined by event rather than by date.
• Whether a retention bond may replace cash, and on what terms.
• A defects liability period long enough to include a full summer and a rainy season.
• A clear statement that release requires the handover documents, not only the physical works.

Stage 1: Track the retention balance monthly

Show the cumulative retention held on every certificate, so both sides know the figure at all times. Surprises about the balance are common on projects where retention was only calculated when somebody asked, and they poison the completion discussion.

• Deliverable: A running retention balance on each payment certificate.
• Owner: Certifier.
• Approval gate: Balance agreed in writing before the first release is considered.

Stage 2: Define what completion means before you reach it

Agree, months in advance, the specific evidence that will justify the first release: the snag list closed to an agreed standard, test results, commissioning records, and the documents you need for the building to be used. Negotiating this at the door of the finished building never favours the owner.

• Deliverable: A written completion criteria list issued well before the target date.
• Owner: Owner representative with the supervising engineer.
• Approval gate: Criteria issued at least one quarter before the forecast completion.

Stage 3: Inspect, list and categorise defects

Separate items that prevent use of the building from items that are cosmetic or minor. Holding the whole retention over a scratched door frame is unreasonable and invites a claim. Holding it because a drainage run has not been tested is entirely defensible.

• Deliverable: A categorised defects list with an agreed remedy and date for each item.
• Owner: Supervising engineer with the contractor present.
• Approval gate: No first release while any item in the preventing use category is open.

Stage 4: Release the first tranche against evidence

Release the contractual first portion once the criteria are met, and say in writing that the release relates to completion only and does not accept any outstanding defect. A clean, prompt first release buys the cooperation you will need during the defects period.

• Deliverable: A release certificate stating what it covers and what remains held.
• Owner: Certifier, paid by the owner.
• Approval gate: Release wording reviewed so it does not read as acceptance of open items.

Stage 5: Use the defects liability period actively

Report defects as they appear, in writing, with photographs and dates, rather than saving them for a final list. A defect reported in month two of the period is fixed under the contract. The same defect reported in the final week frequently becomes an argument about whether it was there before.

• Deliverable: A running defects log with reported dates and closure dates.
• Owner: Owner or property manager.
• Approval gate: Every defect notified in writing within the period, not after it.

Stage 6: Inspect before the period expires

Carry out a full inspection before the defects period ends, not on the day it ends. Include a seasonal check: cooling performance after a summer, and roof and drainage performance after rain. Give the contractor time to respond while the obligation still exists.

• Deliverable: An end of period inspection report issued before expiry.
• Owner: Supervising engineer or an independent inspector.
• Approval gate: Final release withheld until the report items are closed.

Stage 7: Release the balance and close the file

Release the remaining retention once the report is closed and the handover documents are complete, then settle the final account. Keep the warranties, test certificates and as built records, because they outlive the retention and are what you rely on afterwards.

• Deliverable: Final release certificate, closed defects log and a complete handover file.
• Owner: Owner with the certifier.
• Approval gate: No release until the document set is complete, not merely promised.

Handovers between stages

Retention fails at two handovers. The first is from the construction team to whoever manages the building, because a manager who never saw the defects list cannot enforce it. The second is from the contractor site team to their head office, since the people who know the defects leave the project and the people holding the money do not. Name one person on each side for the defects period and put it in the completion documents.

How you know it is finished

Retention is properly closed when the balance is zero, the defects log shows every item with a closure date, the end of period inspection report is signed off and the handover documents are in your possession. If you released the money before the documents arrived, they generally never arrive.

Domira designs, builds and manages projects across Saudi Arabia for owners who are based abroad: land appraisal, feasibility, design, construction, handover and asset management under one accountable contract. Send us the plot or the brief and Domira will put the numbers in front of you before you commit.