Retention, also commonly called retainage, is a term that refers to the percentage of payment held back from a construction contract. This is a financial term and the owners of a building, or those who are paying for its work to be done, take the lead in drawing up and enforcing the retention plan. General contractors sometimes have retention plans as well.
Levels of Retention
There are two levels of retention. The first deals with the owner of the building under construction. That owner may establish a retention plan regarding his or her contractors and completion of the contract. The second level involves general contractors, who may set up a retention plan for subcontractors that he or she hires.
Purpose of retention
Retention provides owners with knowledge that the project a contractor has signed must be completed if the contractor is to be paid for his or her work in its entirety. A retention plan often calls for the withholding of 5 per cent to 10 per cent of payment until the work is finished as promised. Also, retention ensures that items on the "punch list," or the list of items that will vary after completion of a project, is completed in its entirety as well.
If an owner was building a home with five bedrooms, he or she might agree to pay an electrician £13,000 to service all five at a group discount. This breaks down to £2,600 per bathroom. If, for example, the electrician quits after finishing four out of the five bedrooms, that means he or she would receive 80 per cent of the promised money, or £10,400. The electrician might move on to another £13,000 project elsewhere, leaving the owner with an unfinished bedroom and no option for another group discount from a new electrician. However, if the electrician is under a retention plan, the electrician would not receive 10 per cent of what was completed until entire job is done.
Retention generally is a good idea to include in a construction contract, but it is not applicable to all situations. Construction workers who handle stored materials generally are not forced to follow a retention plan. This includes those who provide and deliver materials needed to complete a project. Often, they must be paid up front with no retention guidelines in place. Retention plans also might not be enforced if a contractor was dishonest about his or her work.