RETENTION MONEY

[LUCKYSAJ]

what is retention money and what is the function of retention money in accounts.

thanks

[mudassar2704]

Retention money is the amount withheld from the payments made to a contractor by the employer. This money is withheld and retained by the employer till the completion of the whole project/contract. Suppose there is a contract of Rs. 10,000,000/- for constructing a 10Km road.
This contract may take say 2 years to complete. Now this whole amount may not be paid by the employer to the contractor at once, nor contractor may be able to work for 2 years with all his resources without any payment for such period.

Normaly contractor sends his bills for the part of work performed from time to time. Say 10 bills of equal amount of Rs. 1,000,000/- are set by the contractor to the employer. Now employer will deduct a certein percentage(agreed in contract) of this bill while payment say 10% which is 100,000/-. Ultimately net payment of 900,000/- will be made to contractor. Thsi deduction of 100,000/- is called retention money. This way this retention money will keep accumulating in a seperate account. This amount then will be paid back to contractor after normaly one year of the completion of the contract, when it is certein that contractor has fulfilled all of his responsiblities under the contract and the contract is as per agreed terms, and there is no fault in the work done.