Retention Clause in Construction Contracts Sample
Construction projects are complex and expensive endeavors that involve multiple parties, materials, and resources. Managing the risks and uncertainties associated with such projects can be a daunting task, which is why construction contracts are vital in ensuring that all parties involved are protected from any legal issues that may arise. One important clause that is often included in construction contracts is the retention clause. In this article, we will discuss what a retention clause in construction contracts is and provide a sample for reference.
What is a retention clause?
A retention clause is a provision in a construction contract that requires the contractor to retain a certain percentage of the funds paid to them until the completion of the project. The purpose of this clause is to ensure that the contractor completes the project according to the specifications outlined in the contract. Retention is typically a percentage of the total contract value and is held by the client or a third party, such as a project manager.
Retention clauses are also designed to protect the client from any defects or issues that may arise after the completion of the project. The retained funds can be used to cover the cost of any defects that are discovered during the defects liability period, which typically runs for a year after the completion of the project.
Sample retention clause
The following is a sample retention clause that can be included in a construction contract:
„Retention: The client shall retain [insert percentage] percent of the total value of the contract as specified below. The amount retained shall be held in a separate account, and the contractor shall not be entitled to receive this amount until the completion of the project and the issue of the certificates of practical completion and final completion. The retained funds shall be used for the rectification of any defects or deficiencies revealed during the defects liability period, which shall be [insert number] months from the date of practical completion.“
A retention clause is an essential provision in a construction contract that protects both the contractor and the client from potential legal issues that may arise. This clause ensures that the contractor completes the project according to the agreed specifications and provides the client with a guarantee against defects or deficiencies during the defects liability period. As shown in the sample retention clause, the percentage of retention and the defects liability period should be clearly specified in the contract to avoid any confusion or disputes.