tchamexpress Blog

What Is Retention Money in Construction Contracts

Retention money is a common term in the construction industry, and it refers to a portion of the contract price that is withheld by the employer or client until the completion of the project. This amount is usually a percentage of the total contract value, and it is retained to ensure that the contractor completes the project satisfactorily and to cover any defects or delays.

In simple terms, retention money serves as a form of security for the client, as it provides an incentive for the contractor to work diligently to complete the project to the agreed-upon standards. By withholding the final payment until the project is complete, the client can ensure that the contractor delivers the project on time, within budget, and without any serious defects or issues.

The retention amount is typically released to the contractor after a specified period, which is typically between 3 to 12 months after the project`s completion, depending on the terms of the contract. This mechanism helps to ensure that any defects, issues, or problems arising from the project are discovered and rectified before the final payment is made.

Retention money is a crucial aspect of construction contracts and is widely used in the industry. The retention amount is usually set at 5% or 10% of the contract value and serves to protect the client`s interests throughout the construction process.

The retention amount is held in a separate account, and the interest earned on this amount is credited to the contractor. However, if there are any defects or issues with the project, the client can use the retention money to cover the cost of any necessary repairs or corrections.

Overall, retention money is an important tool in the construction industry, serving to protect clients` interests and ensure that contractors deliver high-quality work within the agreed-upon timeline and budget. It is essential to include retention clauses in construction contracts to safeguard both parties` interests and ensure a successful and satisfactory project outcome.

Main Menu x