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Retention is related to the completion of the work finished and successful handover of the project
Performance is related to the meet the targeted completion time period with no compromise on the quality and performance of the project as agreed in the agreement/contract
a retention is 10% percent of the total contract value. which is kept until job is completed and satisfactory bu the client. it should be released as the following , 5% upon preliminary handing over of the project. the remaining 5% will be released upon the final handing over certificate. a performance bond a grantee to the client that the contractor will perform the contract to the satisfaction of the client with in the contract. the client has the right to liquidate part or full of the performance bond if the contractor did not perform the his contracts obligation.
Retention is a agreed percentage contrctualy between client and contractor (Normally 10%) to be released on two stages
The retention is usually an amount deducted in each payment certificate submitted by the contractor to the employer/client as an insurance deduction for the performed works sometimes it can be 10% and reduced to 5% as you surpass 50% of the financial value of the contract signed excluding the variation orders and by the time you hand over your last payment certificate and performed all the testing and commissioning activity you should include the cumulative amount of the retentions deducted in each invoice.
Performance bond is a bond which is kept with the employer or the client with no right to liquidate it unless there was a court order or an accepted rule by an abreviator. It is used as an insurance to the employer that the contractor will comply with the contract conditions and will perform all the works related untill the end of the project span. When the contractor hands the project it is exchanged with another bond called the warranty bond which usually have the same value but have a fixed period from one to two years and is handed back to the contractor by the end of the warranty period.
The release criterea for these bonds are as follows:Retention Bond - as per contract conditions, for eg, in one of our jobs(FIDIC Contract),the Contractor is required to provide a Retention Bond upon receipt of the Taking Over Certificate for the "whole of the Works" equal to 2.5% (two and a half percent) of the Contract Sum.Performance Bond - is usually released upon successful completion of the Defects Liability Period."Whole of the works" typically denotes that all conditions/services of the Contract have been achieved to the satisfaction of the ’Engineer’
There is difference between Retention and Retention Bond. Retention is payment term used in Contracts in order to safeguard certain milestones and generally deducted from Contractor's/Vendor's progressive invoices. When particular milestone achieved, let say submission of "As Built" drawings or Submission of "Tax paid certificate", this retained payment can be released to Contractor/Vendor.
Notwithstanding above, certain contract/agreement may have provision to release above said retained payment to Contractor/Vendor against equivalent bank bond. That is called Retention Bond, which shall have validity till completion of particular milestone at planned date or actual date, whichever is later.
Whereas, performance bond is issued by Contractor/Vendor to client, against its performance mentioned under the contract/agreement such as timely completion of works/supplies, achievement of desired parameters, desired quality of works/supplies etc. During subsistence of the contract/agreement, if any dispute related to Contract performance remains unresolved between parties at contract, then client can encash part or entire amount of such performance bond in order safeguard its interests. There are very rare cases in which court of law can grant injunction against invocation of such bank bond by client on an issue of law. However, matter further can be referred to various dispute resolution mechanisms such as mediation, arbitration etc.. in order to get back such bond as a claim amount.
Retention is a financial security (also called cash retention or withheld cash) held by the lead contractor to ensure that its subcontractors adequately fulfill the obligations required of them under the contract. It is also used as a safeguard against defects in case a subcontractor fails to correct them.
Is cash retention a Performance Bond to keep a contractor honest? Yes. Providing a Retention Bond slowly nudges away the practice of cash retentions (or retention monies) to guarantee the quality of contractor workmanship.
The use of a Retention Bond depends on the Obligee who will require contractors to post it.
A Retention Bond offers clients the financial protection they need in place of cash retention while improving a contractor’s financial standing as it enables them to keep hold of their cash. Another benefit is that the contractor will be notified of the purported defect and is given the opportunity to correct it within a specified amount of time.
There you have it. Just like with Performance Bonds, the Surety vets the financial capacity of, provides the financial protection, and seeks financial recovery for the bonded contractor.
In a nutshell, Performance Bonds serve as an assurance of quality completion of obligations, while Retention Bonds also ensure faithful performance and defect correction on public projects instead of applying cash retention practices.
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