Construction Retention Money in UAE: Release and Disputes

The Civil Transactions Law prescribes no retention percentage and no release date, so the clause has to decide both

Retention percentages in UAE construction contracts are set by the contract, commonly 5% to 10%. This covers how release is staged across practical completion and the defects liability period, retention bonds as an alternative to withheld cash, what retention disputes are actually about, and the forums that hear them.

By Nour Attorneys / 24 August 2026

Reviewed by Mohamed Noureldin, Founder, Managing Partner & Senior Legal Consultant

Retention is money the contractor has already earned and cannot yet collect. A percentage of each progress payment is withheld from the contract sum, as security that the work will be completed and that defects will be remedied. The argument is rarely about whether retention is lawful. It is about when it is released, who certifies the release, and what counts as a valid reason to keep holding it.

The Civil Transactions Law and the various Dubai-specific regulations do not prescribe explicit retention percentages. Retention money is governed largely by the terms agreed in the contract. The retention clause therefore carries the whole arrangement.

No statute sets the percentage, so the clause does

Retention percentages in UAE construction contracts are usually set between 5% to 10%, with 5% the most common figure. Those figures come out of contractual negotiation, balancing the need for financial security against the contractor's cash flow requirements.

The starting point is not always open to negotiation. Public sector contracts and some free zone authorities may impose standard retention clauses. Where the parties are free to draft, retention is often structured in two parts: an initial retention withheld during the construction phase, and a further retention retained during the defects liability period, typically six to twelve months after completion.

Both sides carry a risk in the drafting. Retention money withheld beyond the agreed period, or without valid reasons, can expose employers to claims of bad faith or wrongful withholding. Contractors must ensure that retention money is linked to clear, objective release conditions. Our construction contract lawyers draft retention clauses that balance those interests.

Release comes in two stages, and each turns on a certificate

The first half of the retention amount is typically released upon practical completion of the work, subject to certification by the project engineer or architect. The remaining half is released after the expiry of the defects liability period, provided that all defects and outstanding works are remedied to the employer's satisfaction.

The practical completion certificate is the milestone that triggers entitlement to partial release. That makes certification the pressure point. The process can become adversarial if the employer withholds certification unjustifiably or raises excessive defect claims, so contractors should ensure that the contract clearly defines practical completion criteria and mechanisms for dispute escalation related to certification. That drafting is work for a construction contract lawyer.

UAE contracts generally specify a 6 to 12-month defects liability period, during which the contractor remains responsible for rectifying any defects. The employer's right to withhold retention during that period is designed to protect against latent defects and incomplete works. Release must still be drafted to avoid indefinite withholding, which can create financial strain on contractors and can push a payment question into a dispute.

Release conditions may also include the submission of warranties, guarantees and as-built documentation. Contractors and subcontractors must keep records management good enough to fulfil these conditions promptly. Our contract drafting work sets out such conditions clearly, to prevent the ambiguities that trigger conflict.

A retention bond leaves the cash with the contractor

Retention bonds are an alternative to cash retention. Instead of withholding actual funds, the employer accepts a bond issued by a bank or insurance company as security for the retention amount. The contractor keeps its cash flow, and the employer holds financial security equivalent to cash retention.

Retention bonds must be carefully drafted to meet the contract's requirements, including enforceability, stipulated tenure aligned with the defects liability period, and clear invocation procedures. Bonds often contain clauses limiting the employer's right to call upon the bond to instances of contractor default confirmed by certification or adjudication.

The UAE's legal framework recognises retention bonds, but parties must ensure that bond terms comply with local regulations and contractual stipulations. Disputes over bond calls can be complex and need detailed legal analysis. Bonds are also used in international contracts governed by UAE law, where they reduce the need for cash retention. That matters most on large-scale or multi-jurisdictional projects, and our construction contract team structures bonds to align with UAE legal standards and commercial objectives.

What retention disputes are actually about

Key causes include unjustified withholding, disagreements over defect rectification, delays in certification, and disputes over retention bond calls. Each can cause significant project delays and financial losses.

The first defence is contractual. Parties should set out clear contractual provisions that define retention amounts, release conditions, certification processes and dispute escalation mechanisms; well-drafted contracts act as a barrier against misunderstandings. That is what our contract drafting work addresses.

The second is early engagement with dispute resolution. The UAE legal system provides several forums, including litigation in the civil courts, arbitration under rules such as those of the Dubai International Arbitration Centre (DIAC), and alternative dispute resolution methods. Arbitration is often preferred for its neutrality, confidentiality and enforceability advantages. Our international arbitration team acts in these disputes.

The third is documentary. Records of all communications, certifications, defect notices and payment records support a claim or a defence related to retention money, and strengthen a party's position in any adjudicatory process. Parties should also set up internal protocols for retention money management, to comply with contractual and regulatory requirements.

Before resorting to litigation or arbitration, parties should consider mediation or expert determination. Those methods can resolve conflict early, preserve business relationships and reduce costs.

How the courts and tribunals have treated withholding

Federal Law No. 5 of 1985 and various emirate-specific regulations provide the foundation for these contractual relationships. The law does not explicitly regulate retention money, so general principles of contract law, good faith and equity apply.

Dubai Municipality and the Abu Dhabi Department of Municipalities have issued guidelines that touch upon retention practices in public construction contracts, often prescribing maximum retention percentages and timelines for release.

Recent judicial trends show UAE courts increasingly willing to scrutinise retention money withholding, especially where the withholding is indefinite or unjustified. The courts have emphasised adherence to contractual terms and equitable treatment. In arbitrations seated in the UAE, tribunals have shown a preference for enforcing clear contractual terms on retention money, while discouraging tactics that frustrate the release process. Our construction law practice follows these developments and applies them when structuring retention provisions.

Jurisdiction when the project crosses emirates

Disputes over retention money often involve parties based in different emirates, or international entities. Since UAE federal law applies uniformly, the choice of jurisdiction and governing law provisions in the contract must be carefully calibrated so that retention money clauses are enforceable.

A contract governed by Dubai law but involving a project in Abu Dhabi may require specific provisions to position dispute resolution in the desired forum. Where those clauses are left vague, the parties can spend a long time arguing about the appropriate venue before anyone reaches the retention question itself.

Escrow accounts and interim relief

Some parties have begun to use escrow arrangements or third-party trusteeships for retention sums. The money sits in a neutral account, and funds are released only upon agreed conditions verified by an independent party such as the project engineer or an adjudicator. That removes unilateral control over retention money, and it is particularly effective in multi-tier subcontracting chains where subcontractors face disproportionate risk exposure.

Interim relief is the other procedural lever. A contractor facing wrongful withholding of retention money may seek injunctive relief or freezing orders where employer action threatens the sustainability of its cash flow. An employer may seek to enforce retention bonds or call guarantees preemptively. Contractual clauses that specify the conditions for such interim measures help keep the balance of power calibrated and reduce escalation. Our dispute resolution team advises on and litigates these interim measures in the UAE construction sector.

Related: Our construction contract and retention advice covers both the drafting of retention clauses and disputes about their release.

We advise on construction contracts, retention clauses and the arbitration and dispute resolution that follows when retention is not released: contact Nour Attorneys.

Disclaimer

This article is for informational purposes only and does not constitute legal advice.