Retention is written into contracts

Retention Under the NEC Contract: A Guide for Quantity Surveyors

As a quantity surveyor (QS) in the construction industry, understanding the various contractual nuances is crucial. One such facet is NEC retention, a specific approach employed by the NEC (New Engineering Contract) suite of contracts. This article delves into the intricacies of NEC retention, equipping you with the foundational knowledge necessary to navigate this critical aspect of construction projects.

What is Retention?

Retention, in general terms, refers to a portion of a contractor’s payment that is withheld by the client until specific conditions are met. This withheld amount serves as a security mechanism for the client, providing assurance that the contractor will rectify any defects or fulfill contractual obligations before receiving the full payment.

The Traditional Approach vs. NEC Retention

Traditionally, retention schemes were commonplace in construction contracts. However, the NEC contract suite adopts a distinctive approach towards retention. Unlike traditional contracts where retention is often the default, NEC makes it an optional clause within the contract, designated as Option X16.

This implies that the decision to implement retention rests upon the mutual agreement of both parties, the client and the contractor.

When is Retention Used in NEC Contracts?

While not mandatory, NEC outlines specific scenarios where employing Option X16 might be advantageous for the client:

  • Concerns over Defect rectification: If the client anticipates potential issues with the contractor fulfilling their obligations to rectify defects, implementing Option X16 can offer an additional layer of security.
  • Contractor’s financial health: If the contractor’s financial stability raises concerns, retaining a portion of the payment can mitigate potential risks associated with their insolvency.
  • Inadequate quality management: If the client has reservations about the contractor’s quality management systems, using Option X16 can incentivize delivering work to the agreed-upon standards.

Key Points Regarding NEC Retention:

  • Retention percentage: The contract allows for negotiating the retention percentage which is typically a fixed percentage applied to each interim payment made to the contractor.
  • Retention release: Half of the retained amount is released upon completion of the entire project or when the client takes over the whole works.
  • Payment for work after notifying defects: Even with a retention clause in place, the contractor is entitled to payment for work completed satisfactorily, excluding notified defects.
  • Alternative security mechanisms: NEC encourages exploring alternative security mechanisms beyond retention, such as performance bonds or guarantees.

Benefits of Using Option X16:

  • Enhanced security: Provides the client with additional security against potential issues arising from the contractor’s performance.
  • Incentivizes quality: Can serve as an incentive for the contractor to prioritize delivering defect-free work.
  • Flexibility: Offers the parties the flexibility to decide on implementing retention based on project-specific needs.

Potential Drawbacks of Using Option X16:

  • Cash flow impact: Retaining a portion of the payment can impede the contractor’s cash flow, potentially hindering their ability to meet financial obligations.
  • Administrative burden: Managing the retention process can add an administrative burden to both parties, requiring additional time and resources.
  • Reduced trust: Implementing retention can, at times, be perceived as a lack of trust in the contractor’s capabilities, potentially impacting the collaborative spirit of the project.

Conclusion

As a QS, understanding NEC retention is essential for effectively navigating construction projects. While not a mandatory element, it’s crucial to comprehend its purpose, application, and potential implications. By possessing a clear understanding of NEC retention, you can contribute meaningfully to informed decision-making within the construction project team.

Remember: This article provides a general overview, and referring to the specific NEC contract clauses and seeking professional guidance is essential for comprehensive knowledge and handling real-world scenarios.

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