How to Legally Handle Retention Money Disputes in Contracting in Bahrain
In Bahrain’s contracting sector, retention money is a common contractual tool used to ensure that contractors fulfill their obligations and correct any defects after completion. Typically, a percentage of each payment is withheld until the project is complete with part of it released after handover and the rest after the defects liability period (DLP).
While retention provides security for employers, it can become a major source of legal disputes if the release conditions are unclear or unfairly withheld. This blog explains the legal framework, common dispute causes, and best practices for handling retention money issues in Bahrain.
What Is Retention Money?
Retention money is a percentage often 5–10% of the contract price withheld by the employer to:
- Ensure the contractor completes the project in line with the contract.
- Cover the cost of rectifying any defects during the DLP.
- Provide leverage in case of performance issues.
The retention amount is usually released in two stages:
- Half upon practical completion (handover).
- The remainder after the DLP ends and defects are rectified.
Legal Framework in Bahrain
- Contractual Basis: Retention must be clearly stated in the contract, including the percentage, release conditions, and timing.
- Defects Liability: Employers can withhold final retention until defects identified during the DLP are resolved.
- Good Faith Principle: Bahraini contract law emphasizes fairness — employers cannot withhold retention arbitrarily or without valid reason.
- Dispute Resolution: Contracts often specify arbitration or litigation for unresolved payment disputes.
Common Causes of Retention Disputes
- Ambiguity in release conditions — unclear contract terms on when and how retention is released.
- Unjustified withholding — employers retaining funds despite completion and defect rectification.
- Defect disputes — disagreements over whether an issue is a construction defect or normal wear and tear.
- Documentation gaps — lack of completion certificates, inspection reports, or defect closure records.
Example:
A contractor in Bahrain completed a public infrastructure project. According to the contract, the final retention was due 12 months after handover, provided all defects were corrected.
At the end of the DLP, the employer refused to release the retention, citing minor issues unrelated to the original scope. The contractor provided evidence that all defects had been rectified and that the outstanding items were due to external factors.
A lawyer reviewing the case confirmed that withholding retention without valid contractual grounds could be challenged successfully, but noted that the contractor’s strong documentation and timely defect rectification were key to enforcing payment.
Best Practices
For Contractors:
- Keep clear, dated records of completion and defect rectification.
- Request written confirmation when defects are resolved.
- Follow up formally on retention release dates.
For Employers:
- Specify clear release conditions in the contract.
- Conduct timely inspections and communicate defect lists early.
- Release retention promptly once contractual obligations are met.