Retention Guarantee definition
Retention Guarantee or retention bond is the possibility that the investor keep part of the money for several months (up to 12 months) after job is down.
A Retention Bond is issued in favour of an employer where the employer has agreed to waive the right to the deduction of retention monies from sums owed to the contractor for work performed. Generally the retention percentage is between 3% to 5% of the contract price and the bond issued will be for the retention percentage.
In contract we can see very often section something as :
Payment shall be made without objection or legal proceedings of any kind, upon receipt of your first written claim (sent by registered letter with confirmation of receipt) stating that the Contractor has failed to perform its contractual obligations fully and properly or that the Contract has been terminated. We shall not delay the payment, nor shall we oppose it for any reason whatsoever. We shall inform you in writing as soon as payment has been made.
So freelancers and contractors need to know that in large projects sometimes they need to wait up to 12 months to receive 5% money. Guarantee Period is very important for projects because investor need to test product or object.