Retention Payments in Construction: Payment Security and Escrow
Retention money is commonly used to secure contractual performance by withholding part of an amount otherwise payable. It is not the same thing as escrow.
Why retention payments matter
Retention can create competing concerns. The principal wants security for completion or defects obligations, while the contractor wants confidence that retained money will remain available and be released when the contractual requirements are satisfied.
Retention is not automatically a case to use escrow
Construction retention money can be subject to specific state or territory legislation, trust-account requirements, security-of-payment rules and contractual obligations. Where a statutory regime applies, parties must comply with that regime. GoEscrow should not be used as a substitute for a legally required retention trust or other mandatory arrangement.
Where escrow may be relevant
Outside a mandatory statutory structure, some commercial transactions may have a similar underlying payment-timing problem: one side wants money secured while the other wants release deferred until an agreed event. Whether GoEscrow is suitable depends on the transaction and applicable product terms.
Questions to resolve first
- Does legislation prescribe how retention money must be held?
- What does the contract say?
- Who is entitled to the money and when?
- What event triggers release?
- Is the proposed GoEscrow transaction eligible and consistent with those requirements?
Related information
See Progress Payments and Staged Payments and Business Escrow in Australia.
Product information
Review the Product Disclosure Statement, Financial Services Guide and Terms of Use.