Retention bond
Retention is a percentage (often 5%) of the amount certified as due to the contractor on an interim certificate that is retained by the client. The purpose of retention is to ensure the contractor properly completes the works required under the contract.
Half of the amount retained is released on certification of practical completion and the remainder is released upon certification of making good defects. Retention due to subcontractors may in turn be held by the main contractor and so on down through the contractual chain.
The recovery of retention is often a difficult area for parties in the contractual chain and cash flow problems frequently arise resulting from non-payment. In theory, this should be prevented by the Housing Grants Construction and Regeneration Act which disallows ‘pay when paid’ clauses, however, retention is commonly not released on time or in accordance with the contract. For subcontractors in particular, the release of retention may rely on circumstances outside of their contract or their control, for example, defects being remedied under the main contract by other parties.
Retention bonds are way of avoiding problems associated with retention recovery. Amounts that would otherwise have been held as retention are instead paid, with a bond being provided to secure the amount. Similar to retention, the bond’s value will usually reduce after the certification of practical completion.
Only if practical completion is not achieved by the subcontractor or if they prevent a certificate of making good defects from being issued will the retention bond take effect. The contractor is then able to ‘call’ on the retention bond.
A subcontractor is usually allowed a fixed period of time to rectify any defects, and this is stipulated by the retention bond. Should they fail to rectify the defect, the retention bond can be called on by the contractor and the surety must cover the remedial costs, before then pursuing the subcontractor.
Whilst subcontractors must pay the surety’s premiums, the benefit to them is that they do not have to chase retention monies post-completion, and no retention monies will be withheld. This cash flow security is often seen as worth the cost of the premium. Similarly, retention bonds are advantageous to contractors in improving the cash flow and financial stability of the subcontractor, making them less likely to default on the works.
Retention bonds include a fixed expiry date, making it clear when the subcontractor is released from its obligations.
Retention bonds may also be used as an alternative to retention between the employer and the main contractor.
[edit] Related articles on Designing Buildings Wiki
- Advance payment bond.
- Bonds and guarantees (Aviva Insurance Limited v Hackney Empire Limited 2012).
- Bonds in construction contracts.
- Campaign for cash retentions reform.
- Certificate of making good defects.
- Construction (Retention Deposit Schemes) Bill 2017-19.
- Defects.
- Defects liability period.
- Final account.
- Holdback.
- Parent company guarantee.
- Performance bond.
- Practical completion.
- Retainage.
- Retention.
- Retention held in trust fund.
- Sub-contractor.
- The problems with retention.
- Zero-coupon bond.
[edit] External references
Featured articles and news
Shading for housing, a design guide
A look back at embedding a new culture of shading.
The Architectural Technology Awards
The AT Awards 2025 are open for entries!
ECA Blueprint for Electrification
The 'mosaic of interconnected challenges' and how to deliver the UK’s Transition to Clean Power.
Grenfell Tower Principal Contractor Award notice
Tower repair and maintenance contractor announced as demolition contractor.
Passivhaus social homes benefit from heat pump service
Sixteen new homes designed and built to achieve Passivhaus constructed in Dumfries & Galloway.
CABE Publishes Results of 2025 Building Control Survey
Concern over lack of understanding of how roles have changed since the introduction of the BSA 2022.
British Architectural Sculpture 1851-1951
A rich heritage of decorative and figurative sculpture. Book review.
A programme to tackle the lack of diversity.
Independent Building Control review panel
Five members of the newly established, Grenfell Tower Inquiry recommended, panel appointed.
Welsh Recharging Electrical Skills Charter progresses
ECA progressing on the ‘asks’ of the Recharging Electrical Skills Charter at the Senedd in Wales.
A brief history from 1890s to 2020s.
CIOB and CORBON combine forces
To elevate professional standards in Nigeria’s construction industry.
Amendment to the GB Energy Bill welcomed by ECA
Move prevents nationally-owned energy company from investing in solar panels produced by modern slavery.
Gregor Harvie argues that AI is state-sanctioned theft of IP.
Experimental AI housing target help for councils
Experimental AI could help councils meet housing targets by digitising records.
BSRIA Occupant Wellbeing survey BOW
Occupant satisfaction and wellbeing tool inc. physical environment, indoor facilities, functionality and accessibility.