What does retention (retainage) refer to in contractual agreements?

Retention, or retainage, is a common practice in contractual agreements, particularly in construction and project management. It refers specifically to the portion of the contract value that is withheld by the project owner or client until the project is completed. This retention serves as a safeguard to ensure that the contractor completes the work satisfactorily and addresses any potential issues or defects that may arise after the work has begun.

By withholding a certain percentage of the contract amount, typically around 5-10%, the owner has leverage to encourage the contractor to address shortcomings and ensure quality in the completion of the work. Once the project reaches completion and passes any necessary inspections or approvals, the retained amount is released to the contractor.

Understanding retention is critical for managing cash flow, ensuring accountability, and fostering a successful project completion. The other options mentioned do not correctly define retention within the context of contractual agreements, focusing instead on different financial aspects or practices that are unrelated to the withholding of contract funds until project completion.