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CAREERTIPS: 4 things Construction Professionals should know about Retention

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I think it  is important that Construction Professionals should know the following 4 things about retention 

1. What is a retention?

Retention is a percentage of the contract value (usually between 5% and 10%) which is held by the client, as security, to ensure that the contractor:

• properly completes the work under the contract; and
• corrects any defective work after practical completion has been reached.

2. What forms can retention take?

Depending on the specific contractual provisions, retention can be:

• an amount withheld by the client, calculated as a specified percentage of the amount that is due to the contractor in any certified interim payment certificate.
• a retention guarantee, which is an alternative to retention that is deducted in an interim payment certificate.

3. When is retention paid out?

Retention is normally returned to the contractor in two stages of the project:

• A portion of the retention will be released upon practical completion; and
• the balance of the retention will be released upon the expiry of the defects liability period, which is when final completion is achieved. 

4. What do you do when your contract is silent on release of retention?

In the event that:

• the contract is silent on when the retention should be released; or
• there is no contract in place

the retention should be released by the client within a reasonable period after the project is completed.

Also read: My List of 4 things that Construction Professionals should know about Interim Payment Certificates 



Comments

  1. UnknownSeptember 3, 2020 at 11:38 AM

    Contractor's as well as sub-contractor's need to understand why retention is required by the other contracting party, and more importantly, they need to understand when they are entitled to receive the retention back.

    ReplyDelete
    Replies
    1. Adine AbroSeptember 3, 2020 at 3:30 PM

      All very good and valid points, thank you.

      Delete
    2. UnknownSeptember 7, 2020 at 7:45 AM

      Retention is often abuse these days and it is generally subcontractors who are at risk of not receiving their hard-earned monies at the end of the project including all or part of their retention. Even more prevalent is when the main contractor gets liquidated or goes into business rescue. It is far safer to opt for construction guarantees

      Delete
    3. Adine AbroSeptember 7, 2020 at 3:37 PM

      A very well made point thank you. I agree with your comment however I have come across various instances where my subbies are unfortunately not in a position to obtain a construction guarantee. In addition, should the contract specifically require retention alternatively a rention guarantee - the subbie is sadly not able to dictate the terms of the agreement.

      Delete

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