News

The latest construction figures released in June 2026 suggest that activity had begun to recover after several months of weaker performance.

Office for National Statistics data published on 12 June showed that total construction output increased by 1.6% in the three months to April 2026. This was the second consecutive increase in the three-monthly series, with new work rising by 0.3% and repair and maintenance increasing by 3.4%.*

Monthly construction output also edged up by 0.1% in April, although that increase came from repair and maintenance, while new work fell by 0.3%.*

For contractors, a recovering workload can be positive, but it can also increase pressure on cash flow as more projects move through mobilisation, procurement and delivery at the same time.

That makes the treatment of retention especially important.

Why Retention Can Put Pressure on Working Capital

Retention is commonly used in construction contracts as a form of financial security against incomplete work or defects.

Rather than paying the contractor the full amount certified, the employer retains an agreed percentage until specified stages of the contract have been reached.

The exact percentage depends on the contract, but retention levels of around 3% to 5% are commonly encountered in the market.

For the contractor, this means part of the money already earned may remain unavailable for a significant period.

Where a business is delivering several projects at once, the cumulative effect can become material.

How a Retention Bond Can Help

A Retention Bond can provide an alternative to the employer physically withholding some or all of the contractual retention.

Instead, the contractor may receive payment that would otherwise have been retained, while the employer receives a bond providing security for the agreed retention obligation.

This can help the contractor preserve working capital for use elsewhere in the business, subject to the employer accepting the bond and the wording being agreed.

It is important to remember that a Retention Bond does not automatically replace cash retention in every contract. The employer must be willing to accept the arrangement and the bond must meet the relevant contractual requirements.

Why Cash Flow Matters to Surety Underwriters

Cash flow and liquidity are important considerations in surety underwriting because profitable businesses can still experience pressure if too much working capital is committed across multiple projects.

A growing contractor may need to fund:

• labour before payment is received;
• materials and subcontractors;
• mobilisation costs;
• plant and equipment;
• VAT and tax liabilities;
• retentions held by several employers; and
• the costs associated with taking on additional work.

The underwriter may therefore look beyond headline turnover and profit when assessing the strength of the business.

Our Surety Underwriting guide explains how liquidity, working capital and wider financial strength can influence the assessment.

Retention Exposure Can Build Across Multiple Contracts

A relatively modest retention on one contract may not materially affect a contractor.

The position can change when the business has several live projects, each holding back a percentage of certified payments.

For example, the contractor may simultaneously have retention outstanding on projects that are:

• still under construction;
• approaching Practical Completion;
• within a defects or rectification period; or
• awaiting formal release of the final retention balance.

That creates a continuing demand on working capital even when the underlying projects are profitable.

Retention Bonds Can Reduce as the Contract Progresses

Depending on the contract and bond wording, the amount of a Retention Bond may reduce as the contractor reaches specified milestones.

This may include a reduction at Practical Completion, followed by final release after the defects period or another agreed contractual stage.

The precise mechanism should always be checked against the underlying contract and bond wording.

For both the contractor and the surety, clearly defined reduction and expiry provisions can help ensure the bond exposure reflects the remaining contractual obligation.

Release of Old Bonds Matters for Future Capacity

Where a Retention Bond has fulfilled its purpose, obtaining formal release can also be important from a surety-capacity perspective.

A bond that remains technically outstanding may continue to form part of the contractor's aggregate exposure even if the underlying project has largely completed.

Contractors with repeat bond requirements should therefore maintain accurate records of live bonds, reductions and releases.

Our Bond Capacity Explained guide looks at the relationship between individual bonds, total exposure and available headroom.

Growing Contractors Need to Look at the Whole Cash Cycle

The improvement in construction activity reported in June is encouraging, but an increase in workload can itself require additional funding.

Businesses taking on larger contracts or a greater number of simultaneous projects should consider how quickly cash is being converted from work completed into money actually received.

Retention, payment terms, advance procurement and work in progress can all influence that position.

Where growth is significant, surety providers may also want to understand how the additional workload will be financed.

Our guide to Contract Growth & Surety Capacity explains why rapid growth can affect bond availability even where the business is winning profitable work.

Consider Retention Requirements Before Contract Signing

The best time to address retention is usually before the contract is finalised.

If the employer is prepared to accept a Retention Bond, establishing that position early gives the contractor more time to confirm the proposed bond amount, wording, reduction mechanism and underwriting requirements.

Leaving the issue until substantial amounts of cash have already been retained may make the process more complicated.

For contractors expecting a stronger project pipeline through the remainder of 2026, understanding how much working capital could become tied up across those contracts is an important part of financial and surety planning.