What is a Retention Bond in construction contracts?

• A. A warranty issued by the client for all works.
• B. A penalty for late completion of works.
• C. A security measure ensuring contractor performance and protecting against defects.
• D. A general liability insurance policy.

Answer: (C)

A retention bond is a security instrument used in construction contracts to guarantee contractor performance and the remedy of defects, often replacing or reducing the cash that would otherwise be withheld as retention. It’s typically a bank guarantee or an insurance policy arranged in the contractor’s name, backing the client’s right to withhold a portion of payment during the works and the defects liability period. If the contractor fulfills all obligations and fixes defects within the agreed time, the bond remains unused and is released; if not, the client can call on the bond to recover costs up to the bond amount. This protects the client’s interests while allowing the contractor to avoid having cash tied up in retention.

It’s not a warranty issued by the client for all works, not a penalty for late completion, and not a general liability insurance policy.