On a €4m contract with 5% retention, a contractor hands over €200,000 and waits — typically through a twelve-month defects liability period, sometimes considerably longer. That money is not earning, not funding the next job, and not on the balance sheet in any useful form.
A retention bond replaces the cash. The employer keeps a security of identical value, callable on the same grounds. The contractor gets the working capital back. Nothing about the employer’s position changes except who is holding the money.
The objection we hear most often is that the bond costs money and the retention does not. That comparison ignores what the retained cash is worth in the business. At a 0.95% bond rate, €200,000 of released retention costs €1,900 a year. The same €200,000 deployed as working capital on a business running at any reasonable return is worth a multiple of that.
The second objection is procedural: the employer’s quantity surveyor has a standard retention clause and no appetite to vary it. That is a real obstacle, and it is usually solved by presenting the bond wording early — at tender rather than at first valuation — so the substitution is agreed before anyone has cash in hand.
Written by the underwriting team at FDI Insurance d.a.c., Dublin. This piece is general information, not advice on any particular transaction — and it is not an offer of insurance.
