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Retention

Normally, in most construction contracts, portion of the payments due to the contractor from

each interim bill is deducted and withheld. This amount is called retention. In ICTAD / SBD /

01 Clause 48.1, it is stated.

The Retention can be defined as;

"an amount of money withheld from interim payments, as specified in the bidding

document of works contracts which exist between employer and contractor.

Purpose;

To ensure repair of defects in the construction works within the defect liability period.

(In the event of default by the Contractor, this retention money can be used to pay for

remedies).

To provide incentive for the Contractor to complete the construction in order to get

the retention at the end of the contract.

To ensure that the construction work is performed correctly.

(Defects are;

"situations and instances where the works quality deviates from or fails to comply with standards,

design documents or the provisions in the construction contract."

The Defects Liability Period;

is defined as 6 months, 12 months, or 24 months, or as specified in the bidding document. The defects

liability period will commence from the date of Practical Completion of the project by the contractor

for acceptance by the owner. Where delay is caused by the contractor, the defects liability period will

commence from the actual date of the completion acceptance.During the defects liability period, the

contractor will be responsible for, and bear the cost of, repairing defects caused by the contractor.

Where the contractor fails to make the repairs or pay the costs of such repairs, the employer may

deduct the cost of the repairs from the retention money. Such repairs or payment will not release the

contractor from its general indemnification obligations.

For defects caused by others, the employer is required to arrange for the repair of such defects at no

cost to the contractor, and the employer is not permitted to deduct such repair costs from theretention money).

The employer shall specify in the bidding document all the details relating to the withholding

of retention money.

Specifically, the Employer must include contract provisions dealing with:

The method for withholding and the return of retention money;

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The percentage amount of retention money and the duration;

Duration of the defects liability period;

Normally, 10% of the interim bill will be withheld as retention. This is subjected to a

maximum amount, normally 5% of the original contract value. On practical completion of

work, 50 % of the money retained will be released to the contractor. That means only 2.5% of

the original contract sum will be retained during the defects liability period. After the defects

liability period has passed and the Engineer has certified that the Contractor has rectified all

defects notified by the Engineer, the balance retention money also released. (ICTAD / SBD /

01 Clause 48.2).

(As an alternative to the 2.5% retention at the practical completion stage, the Contractor can submit

an unconditional, on demand guarantee, acceptable to the Employer, to the value of the retention and

up to 28 days beyond the end of Defects liability period) ICTAD / SBD / 01 Clause 48.3).

Example:Contract Value = Rs: 1,000,000.00

Contract Period = 10 months + 3 months defects liability

Interim Bill Interim Bill Value Retention Remarks

1st Rs: 100,000.00 Rs: 10,000.00 10 % of the bill value

2nd

Rs: 250,000.00 Rs: 25,000.00 10 % of the bill value

3rd

Rs: 325,000.00 Rs: 32,500.00 10 % of the bill value

4th Rs: 410,000.00 Rs: 41,000.00 10 % of the bill value

5th

Rs: 490,000.00 Rs: 49,000.00 10 % of the bill value

6th Rs: 590,000.00 Rs: 50,000.00 Max limit 5% of cont

value

7

t

Rs: 700,000.00 Rs: 50,000.00 Do8

th Rs: 825,000.00 Rs: 50,000.00 Do

9th

Rs: 910,000.00 Rs: 50,000.00 Do

10thP.C. bill Rs: 999,000.00 Rs: 25,000.00 50% released