What You Need To Know About Retention Bonds


Construction contractors are responsible for completing large projects safely, on time, and within the specified budget. Many things could go wrong on a construction site, and having adequate protection against financial loss is critical for all parties involved in a major construction project.

Surety bonds are used to help provide this financial security. A retention bond is a special type of performance bond that you might want to consider using to protect yourself on future projects.

What is a retention bond?

A retention bond is a specialized type of performance bond that is filed by the lead construction contractor on a project. The retention bond replaces the traditional practice of holding cash in reserve to safeguard against errors or damage and ensure subcontractors complete their work properly.

If a subcontractor fails to complete his or her duties as assigned by the lead contractor, a retention bond claim can be filed to help offset the cost of hiring new employees to complete the work.

Why use a retention bond?

If you have a performance bond, then you may wonder why you need a retention bond as well. Since retention bonds replace cash held in reserve to cover certain contingencies, the retention bond can free up your construction company's cash flow. This allows you to purchase materials and pay your workers without having to dip into savings.

You will still have the financial protection available with a cash reserve, you just won't have to keep the cash in a separate account. The retention bond acts as the cash reserve instead.

What types of retention bonds are available?

You can customize your retention bonds to meet the unique needs of each construction project you work on.

There are two main types of retention bonds in use today. A conditional retention bond guarantees payment whenever a breach of contract is committed by either you or your client. An unconditional retention bond doesn't guarantee an automatic payment. If one party feels that the other has committed a breach of contract, a claim must be filed in order to receive compensation.

Be sure to utilize the retention bond that is best suited to meet the needs of your unique project.

Retention bonds can be valuable assets when it comes to managing your finances while working on a construction project. Having the proper bonds and becoming a performance bond construction contractor can help your business in the future.

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