The retailer, which spends more than £300m a year on construction, is not demanding retentions on its flagship £100m redevelopment of the Peter Jones store in Chelsea, and will abandon the system on all future developments.
John Lewis' decision follows similar moves by clients such as BAA, Tesco, Slough Estates and Defence Estates. Trade bodies are mounting a campaign to persuade all public sector clients to outlaw the practice.
Nigel Keen, director of building and services at John Lewis, said: "Getting rid of retention is the right thing for us to do in order to build long-term relationships with our contractors. We don't want to block their cash flow."
Retentions are cash owed to contractors and subcontractors but withheld to cover any defects discovered after a job is finished. Keen said he expected contractors to remedy defects as a matter of course. If they didn't, "they would be putting at risk their long-term relationship with John Lewis and all the work we offer them".
Subcontractors' leader Rudi Klein, legal adviser of the Constructors' Liaison Group, welcomed the decision. He said: "It gives a great fillip to what we are doing, and it shows that John Lewis recognises that retention achieves very little."
It’s the right thing – we don’t want to block their cash flow
Nigel Keen, John Lewis director of building and services
The CLG is seeking the support of MPs for its campaign, and will set down another early day motion in parliament next month, in the hope of gaining more than the 115 signatures it achieved for a similar motion in April.
As well as ending retention, Keen said he was reducing the number of contractors it employs on John Lewis and Waitrose developments.
John Lewis has formed a strategic retail partnership with developer Bovis Lend Lease for its £600m, seven-year programme of new department stores.
Keen is also looking for contractors to carry out developments of less than £10m, mostly refurbishments. Styles & Wood, which is carrying out the £10m refurbishment of the Oxford Street store in London, is thought to be in pole position, but Keen will make a final decision before Christmas.