News

The latest construction figures released in June 2025 showed another month of growth, with output increasing across both new work and repair and maintenance.

Office for National Statistics data published on 12 June showed that monthly construction output increased by 0.9% in April 2025. New work grew by 1.4%, while repair and maintenance increased by 0.3%. Infrastructure new work rose by 2.0% during the month.*

Over the three months to April, total construction output increased by 0.5%, with new work up 0.9% and repair and maintenance up 0.1%.*

Later in the month, Insolvency Service figures showed 2,238 registered company insolvencies in England and Wales during May 2025, 8% higher than April and 15% higher than May 2024.**

For contractors managing growing workloads, these figures highlight an important commercial tension: stronger activity can create opportunity, but it can also place additional pressure on working capital, payment cycles and retained cash.

Growth Can Increase Pressure on Contractor Cash Flow

Construction businesses often have to fund significant costs before receiving payment for completed work.

As workload increases, contractors may need to fund more:

• labour;
• subcontractors;
• materials;
• plant and equipment;
• mobilisation costs; and
• overheads across several live projects.

Even profitable growth can therefore create additional cash-flow pressure where expenditure increases ahead of receipts.

Retention Can Tie Up Working Capital for Long Periods

Retention is commonly deducted from interim payments as security against incomplete work or defects.

The amount withheld may appear relatively small on a single project, but across several contracts it can represent a meaningful amount of working capital.

For contractors operating on tight margins or managing rapid growth, retained funds can restrict the cash available for new projects and ongoing operating costs.

How a Retention Bond Can Help

A Retention Bond can sometimes be used instead of the employer withholding cash retention.

Subject to the terms of the contract and acceptance by the beneficiary, the contractor may be able to receive more of the contract payment while the beneficiary retains security through the bond.

This can help release working capital that would otherwise remain tied up for part of the contract and defects period.

A Retention Bond Does Not Remove the Contractor's Obligations

The contractor remains responsible for completing the works and dealing with relevant defects or outstanding contractual obligations.

The bond simply changes the form of security.

Instead of the employer holding a portion of the contractor's money, the agreed security is provided through the surety arrangement.

The precise protection depends on the wording of the bond and the underlying contract.

Retention Arrangements Should Be Considered at Tender Stage

It is generally easier to discuss a Retention Bond before the contract has been finalised.

Where the employer is willing to accept a bond instead of cash retention, the mechanism can be built into the commercial arrangements from the outset.

Trying to replace an existing retention arrangement after substantial sums have already been withheld can be more difficult and may require agreement from several parties.

Growing Contractors May Feel the Effect More Quickly

Businesses taking on more work can accumulate retention across multiple projects at the same time.

A contractor may therefore have substantial amounts outstanding even where individual retentions appear manageable.

This can be especially relevant where:

• contracts overlap;
• defects periods are lengthy;
• final accounts take time to agree;
• release certificates are delayed; or
• the business is simultaneously funding new mobilisation costs.

Our Contract Growth & Surety Capacity guide explains how expanding workloads can affect both financial strength and bond capacity.

Surety Underwriters Still Assess Financial Strength

A Retention Bond can improve cash availability, but it still creates an exposure for the surety.

Underwriters may therefore assess:

• latest accounts;
• management accounts;
• working capital;
• cash-flow position;
• contract profitability;
• work in progress;
• existing bond exposure; and
• the contractor's wider order book.

Our Surety Underwriting guide explains how these factors may be reviewed.

Current Information Can Be Important During Rapid Growth

Historic accounts may not fully reflect the position of a business that is growing quickly.

The surety may therefore want to see more recent management information showing how increased activity is affecting cash, margins and working capital.

Our Surety Bond Information Required guide explains the documentation that may be requested during an application.

Multiple Bonds Can Affect Available Capacity

Retention Bonds sit alongside any other surety obligations already outstanding.

A contractor may also have:

• Performance Bonds;
• Advance Payment Bonds;
• Section Bonds;
• Materials Bonds; and
• other contractual guarantees.

The surety may consider the combined exposure rather than viewing each requirement in isolation.

Our Bond Capacity Explained guide looks at how individual and aggregate exposure can influence future headroom.

Facilities Can Help With Repeat Requirements

Where Retention Bonds or other guarantees are becoming a regular part of the contractor's work, a surety bond facility may provide a more structured framework.

This can help establish expected limits and information requirements before each individual bond is needed.

It does not guarantee acceptance of every future requirement, but it can make repeat applications easier to plan.

Cash Flow Remains Important Even in a Growing Market

The construction growth reported in June is encouraging, particularly after several months of mixed market conditions.

However, the rise in company insolvencies during May is also a reminder that higher activity does not remove financial risk.

For contractors managing larger or more numerous projects, protecting working capital can be just as important as winning new work.

Where employers are prepared to accept them, Retention Bonds can provide one way of reducing the amount of cash tied up while maintaining contractual security.