What Is Retention in Construction | What Do You Mean by Retention Money in Construction

Q: Retention in Construction

Retention money is an amount held back from a payment made under a construction contract. It is generally held to ensure that a contractor performs all of its obligations under the contract, and is then released either on practical completion or after the end of a defects notification period.

Q: Retention Money in Construction

Retention money is described as the sum of money held by the employer as a safeguard for any defective or non-conforming work by the contractor.

Q: Purpose of Retention Money

A form of security, provided for in construction contracts, as limited security for the due performance of the contractor’s obligations under the contract.

Q: Release of Retention in Construction

Release of retention is another important term or milestone in any construction contract which is also an indication of completion of the scope of the project up to the mentioned stages.

What Is Retention in Construction?

Important Point

The retention money meaning in Construction can be described as a percentage of amounts that are certified as due to the contractor on an interim certificate, that is deducted from the amount due and retained by the client in construction-related works.

The purpose of Retention in Construction is to make sure that the contractor properly completes the construction or activities required of them as per the contract.

Retention in Construction is needed because it provides a fund for rectifying defects in construction projects.

Retention in Construction provides an incentive for the contractor to complete the construction project on time and without defects.

A large sum of retention money may cause cash problems for the contractors which is why it has been suggested that retention money is not applicable with the Housing Grants, Construction and Regeneration Act, which makes them free from withholding of payment.

A possible alternative to retention is a retention bond, where the client agrees to pay the contractor the amount that would otherwise have been held as retention, but instead the retention amount a bond is provided to secure the amount that would have been retained. The value of the Retention Bond will usually reduce after practical completion of the project has been certified.

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What Do You Mean by Retention Money in Construction?

Retention Money in Construction, or the retention amount meaning, is described as the sum of money held by the client as a safeguard for any defects or non-conforming of construction work by the contractor. This is often referred to as retention money in contract costing.

In most of the construction projects, the amount of Retention Money to hold by the client in each progress claim is 10% of the construction work done and up to 5% of the contract sum.

Retention Money in Construction provides safeguard to the employer from defects which can occur during the defects liability period in construction projects if the contractor does not respond accordingly to the contract terms.

The contractor has to completely finish the whole construction work under his contract from the client in order to receive the Retention Money amount which has been withheld by the client.

Retention money in cost accounting used in construction is subjected to a limit as per the stated percentage in the contract, known as ‘Limit of Retention’. This is what is retention money in cost accounting.’.

The allowable ‘Limit of Retention’ is 5% of the contract sum. Therefore once the limit of retention money is reached, you cannot further deduct retention money.

Retention Money in Construction can also be applied to nominated sub-contractors, and the main contractor can also apply retention to domestic sub-contractors.

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What Is the Purpose of Retention Money?

The purpose of retention money, also known as a retention fee, is to provide protection to the employer. This clarifies what does retention mean in the context of construction.

The purpose of retention money is to give the idea of the importance of completing construction work or signed projects as per the terms and designs stated by the client in the contract.

The purpose of retention money is to make the contractor complete the scope of construction work under his contract in order to receive the retention money amount withheld by the client.

The purpose of retention money is to protect the employer against the money he pays in monthly progress claims.

With such retention money held by the employer, the contractor takes the responsibility to complete the construction project as per the terms, design and quality stated in the initial contract.

The purpose of retention money, also known as retention sum, is providing security in the form of a source of funds. This retention fee meaning is to enable the rectification of defects in construction when the contractor fails to complete the work as per the contract.

Contract retention provides assurance to an individual that the construction work will be completed. For example, if someone hires a contractor to remodel his office, he will want to ensure that the contractor will finish the remodelling completely before leaving. This can be done through contract retention.

Retention Includes Two Levels

First, the hiring individual (Client) holds the money until the contract (can be construction projects) is fulfilled, and he is satisfied.
Second, the Contractor (Employer) holds the money from his or her subcontractors.

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What Is Release of Retention in Construction?

Release of Retention in Construction is another important term in any construction contract which is also an indication of completion of the scope of any construction projects up to the mentioned stages.

Usually, retention monies in construction works are released in two stages of the project.

Release of the First Half of the Retention Monies is released at the time of issuing the completion certificate.

When the completion certificate is issued first half of the retention money will first be certified and then the money will be released.

If there is any outstanding work for the construction project, those will be stated in the completion certificate.

If there is any outstanding construction work available and if the contractor does not accept to complete such defects in works or any outstanding work, a client can deduct a reasonable amount for completing such remaining work.

This reasonable cost will be the amount of money needed to cover the cost of completing the remaining construction work or defects by engaging a 3^rd

Release of the Second Half of the Retention Monies will be certified and released upon the ending of defects liability period.

In most construction contracts, the defect liability period is 12 months which the contractor is liable to complete any defects arise due to bad workmanship.

Upon issuing of maintenance certificate, the 2^nd half of Retention money will be released and with this complete the full release of the retention monies.

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Important Things to Know Retention

Some contractors fail to claim their release of retention money on time due to incompletion of construction work caused by the poor quality of construction.
Final account stage is important for any construction project as the closing of the project involves much work related to cost management.
Retention money provides protection to the employer as per the contract. However, product warranties and retention money of a project are two different things.

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FAQ

Retention in Construction

Retention payments are a percentage of milestone payments owed to a subcontractor or vendor. They are withheld pending full practical completion and resolution of any defects. Many project owners or end clients also hold retention payments from monies due to the head contractor at the agreed project milestones.

How Is Retention Calculated in Construction?

They are typically held by the principal against the head contractor and by the head contractor against subcontractors, usually for 5 per cent of the contract value. The retention funds are usually deducted at the rate of 10 per cent of each progress claim until 5 per cent of the contract value has been reached.

How Does Retention Work?

A retention works by holding onto or retaining a portion of the contract until the job is complete. Once the job is done and the individual that hired the contractor is satisfied, the contractor will receive the retained portion.

Retention Money in Construction

Retention payments are a percentage of milestone payments owed to a subcontractor or vendor. They are withheld pending full practical completion and resolution of any defects. Many project owners or end clients also hold retention payments from monies due to the head contractor at the agreed project milestones.

Construction Retention Accounting

Construction retainage is the final amount of payment kept, by the customer, to ensure satisfactory completion of a project. In both residential and commercial construction, construction retainage is also referred to retention money. Projects are paid with increasing completion until finished.

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Purpose of Retention Money

A form of security, provided for in construction contracts, as limited security for the due performance of the contractor’s obligations under the contract. The Fund accumulates by the owner retaining part of each progress payment due to the contractor until it reaches a maximum.

Contractor Retention

Retention is a percentage (often 5%) of the amount certified as due to the contractor on an interim certificate, that is deducted from the amount due and retained by the client. The purpose of retention is to ensure that the contractor properly completes the activities required of them under the contract.

Release of Retention in Construction

On private construction projects, like residential or commercial jobs, California law doesn’t set a limit on the amount of retainage that can be withheld in a contract. Within 60 days of completion of the work, the public entity in charge of the project must release retention to the general contractor within 60 day.

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What Is Retention in Construction | What Do You Mean by Retention Money in Construction | What Is the Purpose of Retention Money