What does the term "retention" mean in construction contracts?

In construction contracts, the term "retention" specifically refers to a percentage of payment that is withheld from contractors or subcontractors until the completion of a project. This practice is used to ensure that the work is completed to a satisfactory standard and to provide a financial incentive for contractors to finish the job on time and address any defects or issues that may arise after completion. Retention helps protect the interests of the project owner by ensuring that the contractor remains responsible for the quality of the work, and that any necessary corrections can be made without financial disputes.

The other options do not accurately describe the concept of retention in this context. A bonus for completing ahead of schedule does not involve withholding payment; it is a separate benefit that rewards early completion. A temporary permit for initial work is unrelated to payment structures and focuses more on compliance with regulations. A form of insurance for subcontractors does not reflect the financial mechanism of retention but rather concerns risk management and protection against non-payment or project issues. Thus, the definition of retention as a withheld payment aligns directly with its role in construction contracts.