RETENTION BANK GUARANTEE - AN OVER VIEW

The main intention of submitting Retention bank guarantee is for the earlier release of retention money from the client or contractor as the case may be.

As a common practice, and as per the  contract agreement ( letter of acceptance /Local purchase order)  , the client can release the fund to the main contractor can  release the fund to the sub contractor only after deducting certain amount b which known as Retention money.

Volume of retention money would specified  in the contract agreement. Normally it is 5% or 10% of the contract value. client will release such retention money to the contractor as per the clause mentioned in the contract agreement for eg. after two years of completion of the work, or after defect liability period(DLP),after 6 months from defect liability period.etc..

By submitting retention bank guarantee , the contractor can get the retention money earlier than the retention maturity period. So the contractor can utilize this fund for the business. hence it helps to create additional liquidity of fund to the business.

Retention money normally hold by the client to set aside the losses happens during the  DLP period or any retention maturity period. If no such losses happens, then the client can release the retention money on the maturity date.

On submission of the bank guarantee, the contractor can get the retention money earlier than the maturity period. and if any losses is happens during guaranteed period, then the client can submit the Retention guarantee to the bank and can claim the compensation from the bank and subsequently bank will recover this amount from the contractor.