Glossary · also called Retention, Retention amount, Security deposit
What is Retention Money in Construction Contracts?
Retention money: Retention money is a portion of each running bill that the client withholds from the contractor as security for proper completion and the remedy of defects. It is usually a percentage of the bill value set in the contract, accumulates over the project, and is released in part at completion and the rest after the defect liability period.
Definition
Retention protects the client. If the contractor leaves defects unremedied or fails to complete, the client can use the retained money to put things right. For the contractor, retention is earned revenue that has not yet been received — and on a long project it can add up to a significant amount of working capital.
The percentage, any cap and the release schedule are set in the contract. Some contracts call it a security deposit; some allow it to be replaced by a bank guarantee.
How it works
An example, with illustrative terms only: retention of 5% of each bill, capped at 5% of the contract value, with half released at completion and half at the end of the defect liability period.
| Bill | Certified value (₹) | Retention at 5% (₹) | Cumulative retention (₹) |
|---|---|---|---|
| RA 1 | 20,00,000 | 1,00,000 | 1,00,000 |
| RA 2 | 30,00,000 | 1,50,000 | 2,50,000 |
| RA 3 | 25,00,000 | 1,25,000 | 3,75,000 |
If the project finished here, ₹1,87,500 would fall due at completion and ₹1,87,500 at the end of the defect liability period, subject to the contract.
Retention is deducted on each RA bill alongside other deductions such as mobilisation advance recovery.
Why it matters
- Cash flow. Retention held across several projects can tie up a meaningful share of a contractor’s working capital.
- It is easy to forget. Release dates fall months or years after the work. Without a register, retention is simply never claimed.
- Back-to-back terms. If you retain from subcontractors, keep their release in step with what your client releases to you.
- Tax treatment. How GST and income tax apply to retention depends on your contract and invoicing; agree it with your tax advisor.
In Zaptiz
Zaptiz Construction records retention terms at contract award, deducts retention on each RA bill, and keeps a retention register per project with partial or full release.