The impact of contract duration on the cost of cash retention

Will Hughes, Patricia Hillebrandt and John Murdoch

Construction Management and Economics, 2000, vol. 18, issue 1, 11-14

Abstract: Cash retention is a common means of protecting an employer from a contractor's insolvency as well as ensuring that contractors finish the work that they start. Similarly, contractors withhold part of payments due to their sub-contractors. Larger contracts tend to be subjected to smaller rates of retention. By calculating the cost of retention as an amount per year of a contract, it is shown that retention is far more expensive for firms whose work consists of short contracts. The extra cost is multiplied when the final payment is delayed, as it often is for those whose work takes place at the beginning of a project. This may explain why it is that main contractors are a lot less interested than sub-contractors in alternatives to cash retention, such as retention bonds.

Keywords: Bonds; Cash Flow; Contract; Finance; Retention (search for similar items in EconPapers)
Date: 2000
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Citations: View citations in EconPapers (4)

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DOI: 10.1080/014461900370906

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