Payment Terms and Retention Clauses That Actually Work

Written by Richard O'Shea, Solicitor TEP · Mary Molloy Solicitors, established 1981 · Last reviewed 21 August 2026

Stage payments: milestones, not months

Payment should follow completed work, not the calendar. "€X on completion of foundations, €X at wall-plate, €X at practical completion" survives delays in either direction; "€X per month" rewards slow progress and punishes fast. Each milestone should be objectively checkable, and the final payment should be meaningful enough that finishing properly matters.

The Construction Contracts Act 2013

Where it applies (most construction contracts, with a carve-out for smaller owner-occupied dwellings), the Act guarantees a payment claim architecture: the contract must provide for payment claim dates; the payer must respond to a payment claim within the statutory period if it disputes the amount; an unanswered claim strengthens the claimant's position; pay-when-paid clauses are generally ineffective; and either party may refer a payment dispute to statutory adjudication — a decision in weeks, binding unless and until overturned. Draft payment terms that work with this machinery: claim dates, response windows and a paper trail designed for it.

Retention: the misunderstood clause

Retention is a percentage held back from each stage payment — commonly 3–10% — as security that defects will be fixed. Half typically releases at practical completion, the balance at the end of the defects period. The disputes come from what the clause doesn't say:

• A cap — retention as a percentage of the contract sum, not an open-ended fund
• Objective release triggers — dates or certificates, not "when we're satisfied"
• What happens on termination or insolvency — whose money is it then?
• A mechanism to force release — retention quietly never released is one of the most common subcontractor complaints in Ireland

Late payment

Between businesses, late payment legislation provides default interest and compensation for recovery costs; your terms can reinforce this and add suspension rights — downing tools lawfully requires a contractual or statutory basis, so write one in. Against consumers, keep remedies proportionate and clearly flagged.