What is a Construction Retentions Policy?
for Principal / Main Contractors & Sub-Contractors
It is common in a construction contract that retention monies are retained by the Principal or the Main Contractor of a project as security to ensure the completed work remains defect-free. These retention monies are generally held for a period of 12 months, to safeguard and provide a guarantee to the Principal (or Main Contractor) that adequate rectification works would be undertaken by the contractor should defect occur over the contract period.
The value of these retention monies may be as high as 10% of the contract price, forming a substantial part of a contractor or sub contractor’s receivables. We help these companies, where they need help the most: by protecting these assets against the risk of the Principal or the Main Contractor becoming *insolvent, and defaulting on payment of the retention monies withheld.
Key drivers for stakeholders of a Construction Retentions Policy
For Main Contractors / Principals
- Competitive advantage gained by securing better contractors who prefer dealing with a company that proactively protects their retention monies
- Corporate governance
- Improving cash flow
For contractors / sub contractors
- Balance sheet protection against non-payment of retention monies due, as a result of Main contractor / Principal’s insolvency
- Increased confidence in dealing with the Main contractor / Principal who is putting a project for tender
- Corporate governance
Who needs a Construction Retentions Policy?
- Construction Businesses that hold retention monies
- Contractors who have their retention monies held will be protected if their Main Contractors took up a policy.
How to apply for a Construction Retentions policy?
- Main Contractor (applicant) applies for a Construction Retentions Policy via Bonded Global Limited or Creditworks.
- The Main Contractor will be assessed on their financial strength and stability; in this case, the ability to repay retention monies held only. Euler Hermes will also monitor the applicant’s risk profile throughout the policy period.
- Once the application is approved by Euler Hermes, contractors/sub-contractors who are working on a project for the applicant will receive a letter from Bonded Global Limited (program manager) to complete the application.
- Contractors/subcontractors will receive an acknowledgement of cover by Euler Hermes
- In the event that the applicant becomes *insolvent, Euler Hermes will **indemnify the contractors/sub-contractors for the outstanding retention money owed under an acknowledged project (subject to the policy terms and conditions)
**Cover is for 100% retention value and no deductible applies
*Insolvency occurs when:
(a) A receiver, statutory manager, liquidator, trustee or administrator or other similar officer is appointed in respect of the Liable Party; or
(b) A composition, scheme of arrangement, compromise or other similar arrangement has been approved and become binding on the Liable Party
Why choose Euler Hermes?
- Global leader in credit insurance.
- Over 110 years of trade credit insurance experience.
- S&P AA- financial rating.
- Backed by Allianz, the world’s largest composite insurer.
- 1,700 claims indemnified each week.
- 92% of global GDP represented by the active companies EH track and analyse.