What is a retention bond, and can it replace cash retention?
A retention bond provides agreed security in place of money being withheld, where the parties accept that arrangement. You cannot assume a right to substitute one.
Updated: . By Jack Butler-Kettle, Construction Claims Consultant.
The answer
JCT’s explanation of retention and bonds in lieu describes the contractual alternatives; your subcontract’s form, particulars and amendments determine what has been agreed. Establish the amount secured, who can call on the bond, the conditions for a call, its expiry and any reduction or release mechanism. Compare the premium and any collateral requirements with the cash-flow benefit. Agree what happens to cash already withheld so the same obligation is not unintentionally secured twice. Your solicitor and bond provider advise on the instrument and its availability. Quantsurv can assess the commercial effect and the retention account; we do not issue bonds or arrange insurance.
Example
Illustrative example. The scenario and figures are invented.
A subcontractor has £20,000 withheld and proposes a retention bond. The parties first establish whether substitution is permitted and agree the bond wording, commencement and cash-release arrangements. Producing a quotation for a bond does not, by itself, require the main contractor to release the £20,000.
Before signing, our Pre-Signing Contract Review can flag the commercial retention terms. For cash already overdue, see Retention Claim.
Sources
- What’s Wrong with Retention? (JCT explanation of the 2016 forms). The Joint Contracts Tribunal.