It is the week before Diwali, and the modular kitchen vendor on a Baner apartment in Pune calls the owner directly. The kitchen is installed. The client has moved in. Could the firm release his retention now? His workers need their bonus, and it is festival time.
The owner likes this vendor. They have done four projects together. The snag list has three small items on it: two shutters slightly out of line, a drawer that catches, and a slow drip under the sink. The vendor promises to send someone after the holidays. The owner releases the retention that afternoon. It feels like the decent thing to do.
After Diwali, the vendor is busy with a large new project. His man comes once, adjusts one shutter, and leaves. The drip becomes a stain on the base panel. The client sends photos, then voice notes, then a long message that starts with 'I am very disappointed'. Six weeks later, the firm sends its own carpenter and a plumber to fix everything, and pays them out of its own pocket.
Nobody behaved badly, exactly. The vendor meant to come back. The owner meant well. But the money that was supposed to make sure the snags got fixed was already spent on bonuses.
What retention is for
Retention is a part of each vendor payment that the firm holds back until the work is proven to be complete and free of defects. It is written into the vendor contract: a percentage held from each bill, and the condition for releasing it.
The percentage is a commercial choice between you and the vendor, and it varies from firm to firm. What matters is that it is agreed in writing at the start, not argued about at the end.
Retention exists because of a simple imbalance. Before the work is done, the vendor needs you: he wants his stage payments. After the work is done and paid in full, you need him: you want him to come back for the snags. Retention keeps a little of the balance on your side until the job is truly finished.
The defect liability period, in plain words
Many contracts also set a defect liability period, often called the DLP. It is a stretch of time after handover during which the vendor must fix defects in his work that show up, at his own cost. A hinge that fails, a shutter that warps, a joint that leaks. The length is agreed in the contract.
Often, part of the retention is released at handover once the snag list is closed, and the rest at the end of the DLP if nothing new has gone wrong. That way, the vendor has a reason to fix both the snags you can see on day one and the defects that appear in month three.
This is general practice, not legal advice. Exactly how you word retention and DLP in your vendor contracts is worth a conversation with whoever drafts your contracts, and how retention is treated for GST and TDS is a question for your CA.
Before the work is done, the vendor needs you. After it is done and paid in full, you need him. Retention keeps a little of the balance on your side.
What releasing on goodwill really costs
| Kitchen vendor contract | ₹12,00,000 |
|---|---|
| Retention held (5%) | ₹60,000 |
| Released early, before snags closed | ₹60,000 |
| Firm's carpenter to realign shutters and fix the drawer | ₹14,500 |
| Plumber, plus replacing the water-damaged base panel | ₹24,000 |
| Cost of fixing snags the firm paid itself | ₹38,500 |
| Paid twice for the same finished kitchen | ₹38,500 |
Illustrative example. The contract value, retention percentage and repair costs are made up to show the arithmetic. Retention terms vary by contract.
That ₹38,500 is only the money. The PM made four trips to the flat. The client, who had been delighted at handover, now tells her friends that the kitchen 'had problems'. The firm's handover, which should have been a moment for a referral, became a complaint.
And the vendor relationship took damage too. The owner now feels let down by someone he trusted, and the vendor feels accused over something he meant to fix. Released retention did not protect the friendship. It just removed the one thing that would have kept both sides honest.
Release on closed snags, not on goodwill
Firms that handle this well make one shift. Retention is never a favour. It is released when a fact is true: the snags are closed, and someone has checked.
- Write the release condition into the contract. Say plainly what releases each part of the retention: closure of the handover snag list, and the end of the DLP with no open defects. When the rule is in writing from day one, nobody feels personally refused later.
- Build the snag list from a proper QC walk. At handover, walk every room with a checklist and photos. Each snag gets a room, a photo, a description and an owner. A vague 'few small things' is not a snag list.
- Close snags with evidence. A snag is closed when someone from the firm has seen it fixed, ideally with a before and after photo. 'Bhaiya said it is done' is not closure.
- Watch snag age. A snag open for three days is normal. A snag open for three weeks needs a phone call. Track how long each one has been open, by vendor.
- Release only when the list is clear. When the last snag for that vendor is closed and checked, release the retention promptly. Paying on time when the condition is met is what makes vendors respect the condition.
What about the Diwali call? It will come. The kind answer is not to release retention. It is to help the vendor close the snags before Diwali, or to release a stage payment that is genuinely due. Be generous with your time and your planning. Be firm about the condition.
The objections you will hear
Holding retention firmly can feel uncomfortable, especially with vendors you have worked with for years. These are the objections owners raise most, and honest answers to each.
- 'He is a good vendor, he will come back.' He probably means to. But a good vendor with a new, larger project will put his crew where the money is. Retention keeps your snag list on his schedule.
- 'It is only a small amount.' Small to you, perhaps. To an MSME carpentry workshop, it is often the profit on the job. That is exactly why it works.
- 'Vendors will charge more if we hold retention.' Some may build it into their rates. That is a fair trade for a closed snag list and a happy client at handover.
- 'It will spoil the relationship.' Releasing early and then arguing about snags spoils it far more. A clear rule, applied the same way to everyone, protects the relationship because nobody takes it personally.
The flip side matters just as much. When the snags are closed and checked, release the retention quickly, without being chased. A firm that holds retention fairly and releases it on time earns a reputation that good vendors like. A firm that uses retention as an excuse to pay late earns the opposite, and loses the best vendors first.
Retention is also about the client
There is one more reason this matters. Your client does not care which vendor installed the drawer. To her, the firm built the kitchen. Every snag that stays open is your snag, and every month it stays open is a month your reputation sits under that sink. Retention is not only protection against vendors. It is how you keep the promise you made to the client at handover.
How Pakka handles it
In Pakka, vendor contracts on the Money Desk carry advance and retention, and retention is released only when snags are closed. On the Ops Desk, a failed QC creates snags and rework tasks, snags age so you can see what has been open too long, and open snags hold the handover. The handover pack includes QC certificates and snag closure.
When the snags are closed, the retention becomes payable, and a named person approves the release before it is paid from the firm's own bank. Pakka never holds funds. The Diwali conversation is still yours to have, but the rule is written down for everyone to see.