The payment mechanism of construction projects is different compared to other industries. For every payment made to a contractor or subcontractor a sum of money is held back. This deduction is a phenomenon peculiar to the construction industry and is known as retention. Retentions are held by both clients and contractors and as such involve the whole supply chain. However the effect the practice has on each party varies significantly as a result of which there have been debates regarding the practice. The purpose of this paper is to study the effects of retentions on clients, contractors and subcontractors. The author has conducted an extensive literature review to find out the issues around the practice of retentions and how it affects the parties involved. The impact of the practice on contractors, subcontractors and clients have been studied and analysed. The study is a part of a bigger research conducted which aims to investigate the practice of retentions in the NZ construction industry. It has been concluded that there seems to be an imbalance of power with regards to the retention practice and it is about time that some alternatives be put into place to make the practice fair for all parties.