Retention money: how it is worked out and when it is released
Retention, also called retention money or works security, is a share of the value of work the employer holds back from each payment certificate as security for fixing defects that may appear. It is not a final deduction from what the contractor earns but a deferred amount returned after taking-over as the contract provides. The contract sets its rate, may cap it, and sets when it is released.
By Ta3mir engineering team · Published · Last updated
How retention is worked out in a certificate
It is calculated on the cumulative value of work done to date, less what was held in earlier certificates, which leaves the amount held in the current one. If the contract sets a cap, holding stops when it is reached.
Held to date = the lower of (cumulative gross × retention rate) and the cap
Held in this certificate = held to date − held in earlier certificates
The contract also says what retention applies to: the value of work only, or also additional works and materials. Under the FIDIC Red Book 2017 the retention percentage in the Contract Data applies to the value of work, adjustments for changes in laws and costs, and some other additions, up to the stated limit; if no limit is stated, there is no cap (sub-clause 14.3).
When retention is released
| Egyptian public contracts (Law 182 and its Regulation) | FIDIC Red Book 2017 | |
|---|---|---|
| Rate | 5% of the value of work done, with 95% paid (Regulation art. 93) | The percentage in the Contract Data; the General Conditions set no default (14.3) |
| Cap | Per the tender conditions and the contract | The limit in the Contract Data as a share of the contract value; none stated means no cap |
| Release | In full at provisional taking-over (Regulation art. 93) | Half after the Taking-Over Certificate, half after the latest Defects Notification Period expires (14.9) |
| Early release | Allowed before provisional taking-over against a bank guarantee expiring 30 days after it (Regulation art. 93) | Not in the General Conditions; the guidance for Particular Conditions suggests an optional clause releasing part of the retention against a bank guarantee |
These are the two references as summarised in Ta3mir's reference data. Your own contract's rate, cap and release terms govern, so read them in the Particular Conditions or the tender conditions.
Retention versus a bank guarantee
| Retention | Bank guarantee | |
|---|---|---|
| What it is | Cash from the contractor's earnings held by the employer | A bank's undertaking to pay the employer a stated amount on demand under the guarantee's terms |
| Effect on the contractor | Less cash flow, since part of each certificate is not paid | The cash stays with the contractor, who pays the bank a fee and may need to put up cover |
| How it works | Deducted automatically from each certificate | Provided once for a stated amount |
| Examples | The amount held in each certificate | Advance payment guarantee, performance security (final security), a guarantee in place of retention |
In Egyptian public contracts the advance is paid against an unconditional bank guarantee of the same value, reduced as the advance is recovered (art. 44), and the final security is returned with the final account after final taking-over (Regulation art. 93). Under the FIDIC Red Book 2017 the contractor provides performance security in the amount in the Contract Data (4.2). One project may therefore carry retention and several guarantees at once.
Retention in the contractor's books
Retention is not an expense or a loss: it is money owed to the contractor and paid later. It is recorded when the certificate is approved as a receivable from the employer, «retention receivable», and cleared on release. For a subcontract it works the other way: what the main contractor holds from a subcontractor is a liability until it is paid back.
- Track the retention balance per project and per employer, with the expected release date.
- Remember to claim the release after taking-over; it does not always happen automatically.
- If the amount is large, compare the cost of a guarantee in place of retention with the cost of tied-up cash.
Worked example: three certificates, flat and capped
A contract worth EGP 2,000,000. Rates are illustrative. Case one: 5% retention with no cap. Case two: 10% with a cap of 5% of the contract value, i.e. EGP 100,000.
| Certificate | Cumulative gross | Held to date (5%) | Held in this certificate | Held to date (10%, capped) | Held in this certificate |
|---|---|---|---|---|---|
| Certificate 1 | 400,000 | 20,000 | 20,000 | 40,000 | 40,000 |
| Certificate 2 | 900,000 | 45,000 | 25,000 | 90,000 | 50,000 |
| Certificate 3 | 1,500,000 | 75,000 | 30,000 | 100,000 | 10,000 |
In case two the cap (100,000) is reached in certificate 3, so only EGP 10,000 is held in it instead of 60,000, and nothing after. In case one, once the full contract value is certified the retention is EGP 100,000: released in full at provisional taking-over in an Egyptian public contract, or in two halves under FIDIC 2017: 50,000 after the Taking-Over Certificate and 50,000 after the Defects Notification Period.
Steps for handling retention
- Read in the contract the retention rate, what it applies to, the cap if any, and when and how it is released.
- Work out the amount held in each certificate on the cumulative value less the previous, and stop at the cap.
- Record retention as a receivable from the employer and track its balance per project.
- At taking-over (provisional, or the Taking-Over Certificate, per the contract) submit the release request with the handover minutes.
- If you need the cash earlier and the contract allows it, provide a bank guarantee in place of retention.
- In the final certificate check that total retention matches the sum actually held.
How to do it in Ta3mir
In Ta3mir you set the retention rate and its cap, as a share of the contract, in the project contract terms, and retention is worked out automatically when each certificate is approved.
- Retention is its own line in the certificate summary, from gross to the net due.
- Rates apply when each certificate is approved, and a change affects later approvals only.
- Each contractor in the contractors register has their own contract terms: retention rate, cap and maintenance period.
- Retention release is recorded as its own type, «retention release», separate from executed works.
Sources
- Executive Regulation, Minister of Finance Decree 692 of 2019 (Al-Waqa'i' al-Misriya no. 244 cont. (b), 31 October 2019)
- FIDIC Conditions of Contract for Construction (Red Book), 2nd edition 2017. Text from the licensed publisher copy
This guide is an explanatory summary written by the Ta3mir engineering team. It is not the text of the law or of any contract and it is not legal advice. Figures in the examples are illustrative. Your contract and the officially published text govern, so check them with a contracts adviser before acting.