What is “retention” in construction contracts?

Retention in construction contracts refers to a specific amount of money that is withheld from the contractor or subcontractor's payment until the project is completed satisfactorily. This practice serves as a financial incentive for the contractor to ensure that all work is completed according to the contract specifications and within the necessary timeframe.

Typically, a percentage of the total contract amount is retained, which can be released upon completion of the project, ensuring all obligations, including addressing any defects or issues that might arise, are fulfilled. This mechanism helps protect the owner from potential defects or incomplete work, as contractors are motivated to fulfill their responsibilities fully in order to receive the retained funds.

Thus, recognizing retention as a method to ensure project completion aligns with standard practices within the construction industry, reinforcing its significance in managing contractual obligations and maintaining quality assurance throughout the construction process.