Retention & Retention Bond Flashcards

1
Q

What is a retention clause in a construction contract?

A

A clause that allows the employer to retain some of the monies due to the contractor (3%) which is released at a later date

provides some employer security and contractor insentive

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2
Q

What typical conditions may need to be met before retention is released to the contractor?

A
  1. 50% on PCC
  2. 50% on Reaching end of making good defects
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3
Q

In a JCT standard building contract what are the key standard retention rules

A
  1. Retention valued at 3% - taken off at interim valuations
  2. Half retention released on PCC
  3. Half retention released at end of defects period (6 months)
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4
Q

In a JCT standard building contract what are the key standard retention rules

A
  1. Retention valued at 3% - taken off at interim valuations
  2. Half retention released on PCC
  3. Half retention released at end of defects period (6 months)
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5
Q

Where in the contract could you find information about retention?

A

The contractor particuars

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6
Q

Under JCT SBC - what must an employer do with retention monies?

Also who gets the intrest?

A

The employer must keep the money in a seperate bank account

The Employer gets to keep the intrest

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7
Q

Can a sub contractor not be paid an amount until retention is paid to the main contractor?

A

Due to the Local Democracy, Economic Development and Construction (LDEDC) Act 2009 no payment cannot be dependant on the performance of another (separate) contract. Sub-contractors cannot be withheld any monies due to retention not being paid to the main contractor

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8
Q

What is the advantage of using a retention bond?

A

contractor maintains a better cashflow with no reduction of risk to the employer

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9
Q

Under JCT, what items typically arent subject to retention?

A
  • Loss and/or expense amounts
  • Statutory fees and charges
  • Some additional insurance premiums
  • Opening up and testing costs
  • Fluctuations Options A and B
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10
Q

What happens if a contractor doesnt maitain a retention bond?

A
  • The employer can deduct retention from interim payments
  • If the bond is subsequently taken out, the retention deducted must be repaid to the contractor
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11
Q

What are some disadvantages of retention bonds?

A
  • Employer would have to pay the premium for taking out the bond
  • May reduce the contractor’s incentive to complete to standard and promptly
  • Harms the employer’s cashflow
  • The employer would not get the interest accruing on the amount of the retention bond
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