Retention in construction refers to a practice where a percentage of the payment due to a contractor or subcontractor is withheld by the client or main contractor as a safeguard against potential defects, incomplete work, or non-compliance with the contract. This withheld amount acts as a financial security to ensure that any necessary rectifications or outstanding work are completed by the contractor or subcontractor after the project reaches substantial completion or during the defects liability period.
The key aspects of retention in construction include:
- Retention percentage: The percentage of the payment withheld typically ranges from 3% to 10%, depending on the terms of the contract and the nature of the project.
- Retention release: The retained amount is usually released in two stages. The first half is paid upon the issuance of a certificate of substantial completion or practical completion, indicating that the work has been completed to a satisfactory level. The second half is paid upon the issuance of a final certificate, which marks the end of the defects liability period and confirms that all necessary rectifications have been made.
- Retention fund: In some cases, the withheld amounts from multiple contractors or subcontractors may be held in a separate retention fund or account, which is managed by the client or main contractor.
- Retention bond: As an alternative to withholding payments, a contractor or subcontractor may provide a retention bond, which is a guarantee issued by a third-party surety (usually a bank or insurance company) that covers the retention amount.
Retention is a common practice in the construction industry to manage risk and ensure the quality of workmanship. However, it is essential for clients and main contractors to adhere to the contractual terms and release the retained amounts promptly once the contractual requirements have been met.
