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The impact of contract duration on the cost of cash retention

Author

Listed:
  • Will Hughes
  • Patricia Hillebrandt
  • John Murdoch

Abstract

Cash retention is a common means of protecting an employer from a contractor's insolvency as well as ensuring that contractors finish the work that they start. Similarly, contractors withhold part of payments due to their sub-contractors. Larger contracts tend to be subjected to smaller rates of retention. By calculating the cost of retention as an amount per year of a contract, it is shown that retention is far more expensive for firms whose work consists of short contracts. The extra cost is multiplied when the final payment is delayed, as it often is for those whose work takes place at the beginning of a project. This may explain why it is that main contractors are a lot less interested than sub-contractors in alternatives to cash retention, such as retention bonds.

Suggested Citation

  • Will Hughes & Patricia Hillebrandt & John Murdoch, 2000. "The impact of contract duration on the cost of cash retention," Construction Management and Economics, Taylor & Francis Journals, vol. 18(1), pages 11-14.
    • Handle: RePEc:taf:conmgt:v:18:y:2000:i:1:p:11-14
    DOI: 10.1080/014461900370906
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    Citations

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    Cited by:

    1. Byeol Kim & Yonghan Ahn & Sanghyo Lee, 2019. "LDA-Based Model for Defect Management in Residential Buildings," Sustainability, MDPI, vol. 11(24), pages 1-16, December.
    2. Pordea Daniela & David Delia & Mateș Dorel, 2020. "The Impact of Operating Cash Flow and Current Ratio on the Profitability in Construction Industry," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 30(1), pages 22-32, March.
    3. Swee-Lean Chan, 2002. "Responses of selected economic indicators to construction output shocks: the case of Singapore," Construction Management and Economics, Taylor & Francis Journals, vol. 20(6), pages 523-533.
    4. Onur Dursun & Christian Stoy, 2011. "Time-cost relationship of building projects: statistical adequacy of categorization with respect to project location," Construction Management and Economics, Taylor & Francis Journals, vol. 29(1), pages 97-106.

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