RETENTION BOND

The purpose of Retention is to ensure the contractor properly completes the works required under the contract. In some contracts, the client (the Obligee) may hold between 2.5% and 5% of the contract value (Retention Monies) for up to 6 – 24 months. This period of time is called the Defects Liability Period where you, the contractor (and Principal), will have to remedy defects. This means you will have to wait until the end of the Defects Liability Period to receive your 2.5% – 5% of contract value. This may therefore have a negative effect on your cash flow. In this case, with a view to freeing up cash flow, we can offer a Retention Bond as an alternative solution. As the contractor (or Sub-contractor), you get to keep your cash! These types of bonds not only aid cash flow but they also avoid the need to pursue retentions after completion of the contract.

In short, a Retention Bond ensures that the Contractor receives the full amount of the agreed payment certificates without any retention monies being held. A bond is provided to secure the amount instead. And just as in the case of Retention, the value of the Retention Bond will reduce after the Certificate of Practical Completion has been issued.

Financial Security; the client, in this case the party employing a contractor (or sub-contractor), will receive the same financial security as they would by holding 5% of the contract value in the form of Retention Monies.

In the case of the Construction Industry, a Retention Bond is a type of Performance Bond that protects the client after the completion of the contract. This provides a guarantee that the contractor (the Principal) will fix any issues after the job / project has finished (even after full payment has been made). The retention bond agreement includes an expiry date to avoid confusion about when contractors are released from the contract.

Retention can also be applied to nominated subcontractors. As in case of the main-contractor, cash retention or a Retention Bond also provides financial security for the main contractor to guarantee the sub-contractor full-fills the contract to the required standards. This acts as a safeguard to remedy defects.

Why do you require a Retention Bond?

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.

The client is also guaranteed that the contractor will fix any issues after the job / project has finished

For both parties, there will be toing and froing to release the cash retention when the contract is complete.

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Who requires a Retention Bond?

1. Service sector companies

2. Engineering companies

3. Construction companies

4. Commercial companies

5. Main contractor

6. Sub-contractor

Who is the beneficiary of a Retention Bond?

1. Local authorities

2. Government Entities

3. Commercial companies

4. Main contractor

5. Private Developers

To get started

Complete the Retention Bond Proposal Form. Download here

Last two years consolidated audited accounts

Up-to-date management accounts

Details of banking and borrowing facilities – client needs to send to their bank for completion

Advise form of contract

Copy of bond wording required

Whatever your role, whether you are a Construction company or an Engineering company, should you require Retention under the terms of your project but you want to hang onto your valuable cash flow, a Retention Bond is the solution for you. we work directly with contractors and also with Brokers as they service their contractor clients. As surety specialists we have the expertise and experience to provide the best value tailored solution for your project. Message us now, our team would be happy to talk you through the process.

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