What is meant by "retention" in construction contracts?

"Retention" in construction contracts specifically refers to a percentage of the payment that is withheld until the completion of the project. This practice serves as a financial incentive for contractors to ensure that their work meets the required satisfaction standards and is completed to the project's specifications. By holding back this retention amount, project owners are able to safeguard against potential issues, such as incomplete work or defects that may arise after the project has formally concluded. This withhold typically ranges from 5% to 10% of the total contract price and is released after the completion of the project and after any necessary inspections or corrections have been made, ensuring that the contractor fulfills their obligations.

The other options do not accurately describe "retention." A fixed amount paid upfront refers more to an advance payment rather than retention. Insurance against delays is a separate risk management mechanism, and a bonus system for early completion is incentive-based but does not reflect the typical retention practice within a contract.