A retention bond may be requested by a beneficiary (developer) to ensure the principal’s (contractor’s) work is completed to an agreeable standard.
Half of the retention money is released upon completion and certification of the work and the other half is released at the end of the ‘Defects Liability Period’.
During this period, the principal is liable to remedy any faults in their work, and at the end of this period (which usually lasts between 6-24 months), the other half of the retention money can be returned to the principal.
Without a retention bond, the principal is required to use their cash as the ‘retention money’. This ties up cash flow for a long time and will negatively affect the liquidity of the principal.