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Retention is deducted from each payment at a stated rate until a cumulative cap is reached, then released in two stages: part at practical completion and the balance at the end of the defects liability period. The second tranche is the buyer's remaining leverage on defects.
Total retention
Retention = min(Contract value x Rate %, Contract value x Cap %)
Release stages
First release at practical completion; balance after the defects liability period
Indicative estimate only. Fees, entitlements, limits and formulas vary by jurisdiction, statute, policy wording and the facts of the case. This is not legal, tax, insurance or financial advice — confirm with a qualified professional or the relevant authority.
Because uncapped retention on a large contract would tie up a disproportionate amount of contractor cash and raise the bid price.
Yes, and many contractors prefer it. A retention bond releases the cash while preserving the buyer's security.