Release of retention in construction contract It is important to note that the rules and regulations regarding the treatment of retention money may also be included in the contract between the employer or client and the contractor or supplier, so it's important to review the contract before starting a project. The rules also specify the time frame for the release of retention money, for example, in the United Kingdom the retention money must be released by the employer or client no later than the final date for payment under the contract, unless there are legitimate grounds for withholding it. In some countries, the retention money can only be released once the contractor or supplier has provided a bond, letter of credit, or other form of security to guarantee that they will complete the work as required. ![]() In construction industry, some countries have laws that require employers or clients to pay interest on retention money held, to ensure that the contractor or supplier is not unduly penalized for the employer's or client's delay in releasing the funds. In general, retention money must be held in a separate account, and the employer or client is responsible for ensuring that the funds are used appropriately. The rules and regulations regarding the treatment of retention money can vary depending on the country and the industry. The intention is that the retention money should, in effect, be set aside as a separate fund to be used only for the purpose of providing the employer with security against the making good of defects, and the purpose of making the employer a trustee is to protect the retention money against his liquidation. The ESCL research referred to above revealed typical amounts of 5% certified amounts in France, Greece and the Netherlands and 5% to 10% of the contract sum in Germany and Switzerland. If no limit is specified, the amount that the employer will be entitled to retain will simply be the percentage of the total contract value of the works.The FIDIC forms also provide for the possibility of a limit of the retention money to be specified in the relevant contract document. The percentage to be applied to the contract value of the works executed to calculate the amount to be retained is the percentage of retention stated in the relevant contract document.In this example, the retention money served as a financial incentive for the contractor to complete the work to the required standards, and as a form of security for the client in case the contractor failed to complete the work as required. ![]() Once the contractor has made the necessary repairs and the client is satisfied that the building meets the required standards, the client releases the retention money to the contractor. The client informs the contractor of the issues and gives them a deadline to fix them. ![]() However, during the final inspection, the client discovers that there are some minor defects in the building, such as a few cracked tiles and a leaky faucet. The contractor begins work on the building and completes it on schedule. The client agrees to pay the contractor a total of $10 million for the work, but agrees to hold back 5% ($500,000) of the contract value as retention money. Īn example of retention money in practice would be a construction project where a contractor is hired to build a new office building for a client. ![]() With such retention held, the contractor takes the responsibility to complete the construction project as per the design and quality stated in the initial contract. Retention money gives the idea of importance of completing the signed project as per it's terms and designs. In general, retention money provides protection to the employer. The purpose of retention money is, in significant part, to provide security, in the form of a source of funds, against the contractor's failure to complete any work outstanding when the works are taken over and to remedy any defects or damage and in respect of any other liability of the contractor to the employer. Retention money safeguards the employer by defects which can occur during the defects liability period if the contractor doesn't response according to the contract terms. 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.
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