Funds withheld to guarantee completion of a project and to correct defects are called what?

Funds withheld to guarantee completion of a project and to correct defects are called what?

• A. Retention
• B. Progress Payments
• C. Bonding
• D. Escrow

Answer: (A)

Retention is the portion of funds held back from progress payments to ensure the contractor completes all work and promptly fixes any defects during the defects liability period. This money acts as a security for the owner: if issues remain after substantial completion or defects are found, the retained funds can be used to cover those remedies. Once the project passes inspection and the defect period ends (punch list resolved), the retention is released per the contract. This concept is different from progress payments (the actual installments for work completed), bonding (a third-party guarantee of performance), and escrow (third-party holding of funds for a specific purpose).

Retention is the portion of funds held back from progress payments to ensure the contractor completes all work and promptly fixes any defects during the defects liability period. This money acts as a security for the owner: if issues remain after substantial completion or defects are found, the retained funds can be used to cover those remedies. Once the project passes inspection and the defect period ends (punch list resolved), the retention is released per the contract. This concept is different from progress payments (the actual installments for work completed), bonding (a third-party guarantee of performance), and escrow (third-party holding of funds for a specific purpose).