Sales Contract Retention is the amount retained from the contract payments by the customer to ensure that the contractor completes the construction as agreed before the retention is returned. Typically a retention amount could be 5-15% of the contract value. The retention is defined on the contract and is valid for the whole contract value.
It is possible to enter retention as total retention or final retention. The total retention is the total retention on the contract and hence includes the final retention. A total retention of 10% and a final retention of 5% means that the total retention to be retained is 10% of which 5% is typically not to be released and returned to the contractor until the defect period has been reached (warranty period).
The retention is calculated automatically based on the amount applied for after the contracted discount has been considered, and whenever an application for payment is submitted to the customer any contracted retention will automatically be deducted from the gross application amount. The retention is displayed cumulatively, and for each new application the retention amount will include the retention amounts from the previous applications.
When a certain agreed milestone has been reached, it is possible to release some or all of the accumulated retention retained. An application must be submitted where one can ask for a release (return) of the retained amount, upon which the customer may issue a payment certificate for the released amount to the contractor.
Example:
|
Amount |
|
| Amount Applied for (after discount) |
$90.00 |
| Retention (10%) | $9.00 |
| Sum (Amount applied for after discount and retention) | $81.00 |