What Is Retention in Construction?

What Is Retention in Construction?
Real estate developer discusses plans with construction manager.

Levels of Retention

There are two levels of retention. The first level of retention deals with the owner of a building under construction. That building's owner may establish a retention plan regarding his or her contractors and completion of the contract. The second level of retention involves general contractors who may set up a retention plan for subcontractors that they hire.

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 percent to 10 percent 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.

Examples of Retention

If an owner was building a home with five bedrooms she might agree to pay an electrician $20,000, or $4,000 per room, to service all five. Under a retention plan, the electrician would not receive 20 percent of what was completed until the entire job was completed. If the electrician quits after finishing four out of five bedrooms that means he or she would receive only 80 percent of the promised money, or $16,000.

Limitations of Retention

Retention is generally a good idea to include in a construction contract, but it is not applicable to all situations. Construction workers that handle stored materials usually cannot be 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 don't correct problems when contractors are disingenuous or dishonest about their work.