What is the purpose of Retention in a contract?

The purpose of retention in a contract is to withhold an agreed-upon amount until the project is completed. This practice serves as a financial safeguard for the owner, ensuring that the contractor completes all work to the agreed standards and addresses any defects that may arise after the work is finished. By holding back a portion of the payment, the owner has leverage to ensure issues are corrected and the project meets the specified requirements before full payment is released. This mechanism helps foster accountability and encourages the contractor to fulfill their obligations entirely, which aids in ensuring the quality and timely completion of the project.

While retention indeed incentivizes compliance and can indirectly motivate contractors to finish work efficiently and correctly, its primary role is focused on satisfying the conditions of project completion rather than merely serving as an incentive.