Retention & Retention Bond

Question 1

What is a retention clause in a construction contract?

Answer 1

A clause that allows the employer to retain some of the monies due to the contractor (3%) which is released at a later date

provides some employer security and contractor insentive

Question 2

What typical conditions may need to be met before retention is released to the contractor?

Answer 2

1. 50% on PCC
2. 50% on Reaching end of making good defects

Question 3

In a JCT standard building contract what are the key standard retention rules

Answer 3

1. Retention valued at 3% - taken off at interim valuations
2. Half retention released on PCC
3. Half retention released at end of defects period (6 months)

Question 4

In a JCT standard building contract what are the key standard retention rules

Answer 4

1. Retention valued at 3% - taken off at interim valuations
2. Half retention released on PCC
3. Half retention released at end of defects period (6 months)

Question 5

Where in the contract could you find information about retention?

Answer 5

The contractor particuars

Question 6

Under JCT SBC - what must an employer do with retention monies?

Also who gets the intrest?

Answer 6

The employer must keep the money in a seperate bank account

The Employer gets to keep the intrest

Question 7

Can a sub contractor not be paid an amount until retention is paid to the main contractor?

Answer 7

Due to the Local Democracy, Economic Development and Construction (LDEDC) Act 2009 no payment cannot be dependant on the performance of another (separate) contract. Sub-contractors cannot be withheld any monies due to retention not being paid to the main contractor

Question 8

What is the advantage of using a retention bond?

Answer 8

contractor maintains a better cashflow with no reduction of risk to the employer

Question 9

Under JCT, what items typically arent subject to retention?

Answer 9

• Loss and/or expense amounts
• Statutory fees and charges
• Some additional insurance premiums
• Opening up and testing costs
• Fluctuations Options A and B

Question 10

What happens if a contractor doesnt maitain a retention bond?

Answer 10

• The employer can deduct retention from interim payments
• If the bond is subsequently taken out, the retention deducted must be repaid to the contractor

Question 11

What are some disadvantages of retention bonds?

Answer 11

• Employer would have to pay the premium for taking out the bond
• May reduce the contractor’s incentive to complete to standard and promptly
• Harms the employer’s cashflow
• The employer would not get the interest accruing on the amount of the retention bond