5/14/2020 What is Retention Money in Construction Contracts - Sihela Consultants

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What is Retention Money in Construction Search …

Contracts
Posted by Amila Gamage Contract Administration
Progress Claims, Progress Payments, Quantity Surveying, Retention, Retention Money
Posted on September 20, 2019

I am Amila Gamage
,the founder and
owner of Sihela
Consultants who is an
If you work related to construction sector, then you know that retention
experienced
money is one of the popular terms used in any construction project.
Contracts
However, do you know what is retention money in construction
Engineer/Trainer/Quan
contracts? And do you know how to deduct it in progress payments?
Surveyor.I provide

For most quantity surveyors and contract engineers; deducting retention consultation,quantity

money is not any difficult task. They understand it clearly. However with surveying services

experience working with contractors, I have found that some contractors and workshops for

do not understand the entire purpose of retention money in their construction

companies.
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projects. Even there are times that subcontractors do not submit their FOLLOW
final claim to request the release of retention money. FREE
COURSE
While these are common issues found in construction project payments,
some contractors do not clearly understand the reason why their payment
is less than their actual progress claim.

Having worked in such different situations and having experience with

solving issues arise related to retention money payment and deductions, Learn
in this article I want to share most of the theories and industry practices How to
related with retention money. be
successf
ul in your
Popular terms related to construct
Retention Money ion claim
process
Before discussing further, it is important to understand the different
terms used related to retention money. All these terms doesn’t mean the Enter details to
follow this FREE
amount of retention to be deducted. Each term has its own definition. course.

What are the terms used in related to retention money? Let’s discuss! Name

The amount of retention money, limit of retention, release of retention Email

are some of the common terms and activities involved in any construction
project under this topic. Release of retention involves 2 different stages. Subscribe
That is First release of retention and 2nd release of retention.

However there are times which we find that these terms or the actual
RECENT
purpose of retention money are misunderstood.
POSTS

Although the amount of Retention Money can be different from contract

Construction
to contract (due to the conditions of contracts used), the terms serve the
Disputes : What
same meaning to any construction project around the world.
are the
Common
In such, here is a brief of what is Retention Money in Construction
Causes
contracts and how do you deal with it as a Contractor ,Quantity Surveyor
or as a Contracts Engineer. What are
Liquidated
Damages in
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Warning: before reading further, you understand that these are Construction
guidelines only. You have to refer your actual conditions of contract to Contracts
understand the specific percentages and clauses related to retention
Impact of
money.
COVID-19 Virus
on Construction
Projects

How to Prepare
an Accurate
Cost Estimation
for your
Construction
Bid

My First
Teaching
Experience as a
Trainer for
Certificate in
Quantity

What is Retention Money in Surveying

Course
Construction Contracts?
Retention money is described as the sum of money held by the employer
ARCHIVES
as a safeguard for any defective or non-conforming work by the
contractor. This provision safeguards the employer by defects which can May 2020
occur during the defects liability period if the contractor doesn’t response
according to the contract terms. March 2020

February 2020

Purpose of Retention Money October 2019

In general, Retention Money provides protection to the employer. September 2019

Retention money gives the idea of importance of completing the signed
August 2019
project as per it’s terms and designs. Contractor has to complete the
scope of work under his contract in order to receive the retention money April 2019
amount withheld.
July 2018

September 2017

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This is how employer is protected against the money he pays in monthly August 2017
progress claims.

With such retention held, the contractor takes the responsibility to CATEGORIES
complete the construction project as per the design and quality stated in
the initial contract. Contract
Administration

How to deduct Retention Disputes

Money from the progress Events

claim?
Post-Contract

Pre-Contract

Press Releases

Projects

Tender Stage

Uncategorized

Sample of progress claim on deducting retention money Workshops

In most of the construction contracts, the amount of Retention Money to

hold in each progress claim is 10% of the work done and up to 5% of the GET IN
contract sum. TOUCH

However these figures can be different from contract to contract. +65

Therefore you may need to refer the contract document for the
construction project that you work before deducting any amount. contact@sihelaconsultan

Here is how to deduct retention money from the progress claim. www.sihelaconsultants.c

The sum due to Interim Payment Certificate shall be calculated at the rate Address
of 90% for the value of work done & at the rate of 80% for the properly
protected materials or goods delivered on site. (Generally)

Therefore the percentage of the sum not paid is known as ‘Retention

Money’ for the contract.

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What is the ‘Limit of

Retention Money?
Retention sum is subjected to limit as per the stated percentage in the
contract which is known as ‘Limit of Retention’.

In general, ‘Limit of Retention’ is 5% of the contract sum. Therefore once

the Limit of Retention is reached, you cannot deduct further Retention
Money. In the subsequent interim certificates, you can see the total
retention money deducted. However there will not have further
deductions.

Release of Retention in
Construction Contracts
Release of retention is another important term or milestone in any
construction contract which is also an indication of completion of the
scope of the project up to the mentioned stages.

Usually, retention monies are released in 2 stages of the project.

1. Release of the first half of the

Retention Monies
at the time of issuing the Completion Certificate, The first half of the
Retention Monies will be certified and released

If there is any outstanding work for the project, those will be stated in the
Completion Certificate.

If there are outstanding work available and if the contractor doesn’t

accept to complete such rejected work or any outstanding work, QS can
deduct a reasonable amount for completing such remaining work.

This reasonable cost will be the amount of money to cover the costs of
completing the remaining work by engaging a 3rd party.

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5/14/2020 What is Retention Money in Construction Contracts - Sihela Consultants

2. Release of the second half of the

Retention Monies
The second half of Retention Monies will be certified and released upon
the expiry of defects liability period. In most construction contracts, the
Defects Liability period is 12 months which the contractor is liable to
complete any defects arise due to the poor workmanship.

Upon issuance of Maintenance Certificate, the 2nd half of Retention

Money will be released.

Important things to know

As a contractor or QS in charge for a project, below are the
mistakes and misconceptions to note.

Some contractors fail to claim their release of retention

money on time.

Final Account stage is important for any projects as closing

of the project involves many activities related to cost
management.

Retention money provides protection to the employer.

However product warranties and retention money are two
different things.

Above are the basic concepts behind the term ‘retention money in
construction contracts’. Usually project QS or engineer who deals with the
progress payments know most of these details.

If you find this post is helpful, please share your thoughts.Also read this
post about variations in construction contracts.

What are Liquidated Damages in Construction Contracts

Impact of COVID-19 Virus on Construction Projects
Force Majeure Clause in Construction Contracts : Importance and
Requirements

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What is Retention Money in Construction Contracts

What are Variations in Construction Contracts

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About Author

Amila Gamage
A well experienced Contracts Engineer/
Trainer/ Quantity Surveyor with over 16
years of industry experience in both high rise
buildings and civil engineering projects.

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Comments

Raj Kumar Reply

September 20, 2019 at 6:36 pm

Thanks mam! This article clearly explains all the

necessary things to know regarding retention
money.Sometimes Contractors misunderstand these
deductions in their claim.

Amila Gamage Reply

October 4, 2019 at 8:38 am

Glad you like the article..

Milagro Weeman Reply

February 7, 2020 at 10:51 am

Pretty! This was an extremely wonderful article.

Many thanks for supplying this info.

Ozie Mahnken Reply

February 29, 2020 at 1:05 am

I do believe all of the concepts you’ve presented in

your post. They are very convincing and will
definitely work. Still, the posts are too quick for
novices. May you please prolong them a bit from
subsequent time? Thank you for the post.

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5/14/2020 What is Retention Money in Construction Contracts - Sihela Consultants

Ruby Ellena Reply

March 6, 2020 at 10:36 pm

Your article is really helpful. thnks…

Lela Roberson Reply

March 22, 2020 at 9:41 am

Your method of explaining the whole thing in this

post is in fact pleasant, everyone be capable of
effortlessly be aware of it, Thanks a lot.

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izzi Reply
April 1, 2020 at 6:00 pm

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Jonathon Saviano Reply

April 18, 2020 at 1:51 am

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