What is a Retention Bond?
In some contracts, the client may hold between 2.5% and 5% of the contract value (retention monies) for up to 12 months. This period of time is called the defects liability period where you (the contractor) will have to remedy defects. This means you (the contractor) will have to wait until the end of the defects liability period to receive you’re 2.5% – 5% of contract value. Therefore this may have a negative effect on your cash flow, however, we can offer a retention bond as an alternative solution. As the contractor, you get to keep your cash!
If you’re the client employing a contractor you will receive the same financial security as you would by holding 5% of the contract value. This money will be freed up and returned to your account.
Retention is a percentage (often between 2.5% and 5%) of the amount certified as due to the contractor on an interim certificate that is retained by the client.
A retention bond is a type of performance bond in the construction industry that protects the client after the completion of the contract. This provides a guarantee that the contractor will fix any issues after the job / project has finished (even after full payment has been made).
Cash retention or withheld cash provides financial security held by the main contractor to guarantee the subcontractor fulfils the contract to the required standards. This acts as a safeguard to remedy defects.
Who is a Retention Bond For?
Designed for both contractors and clients to ensure practical completion of the project.
Why You Need a Retention Bond.
As the contractor, you might be required to arrange a retention bond agreement as well as a performance bond agreement. Three benefits of arranging a retention bond include:
As the contractor you can hold onto your cash – saving you money and providing cash flow benefits.
As the client you get financial protection for your project.
For both parties, there will be no chasing around to release the cash retention when the contract is complete.
*Also, the retention bond agreement includes an expiry date to avoid confusion about when contractors are released from the contract.