No retention rights: Overview, definition, and example
What are no retention rights?
"No retention rights" refers to a provision in a contract that specifies that one party, typically a client or employer, does not have the right to withhold a portion of payment from the other party, such as a contractor or vendor, as a form of security or guarantee. Retention rights are common in construction contracts or large service agreements, where a client may withhold a percentage of the payment until the work is completed to satisfaction. The "no retention rights" clause eliminates this practice, meaning the contractor or service provider is entitled to receive the full payment without any deductions, even before the project is fully completed or the client’s satisfaction is verified.
For example, in a construction contract with a no retention rights clause, the contractor would be paid the full amount upon completion of the agreed milestones without the client holding back a portion of the payment for any period of time.
Why are no retention rights important?
No retention rights are important because they ensure that the party providing the service or work receives full compensation as agreed without delays or deductions. This is particularly significant for contractors or suppliers who may rely on full and timely payments to cover their expenses. Removing retention rights can improve cash flow, reduce financial strain, and prevent disputes regarding withheld funds.
For businesses, a no retention rights clause can help maintain strong relationships with contractors and vendors by ensuring they are paid promptly and fairly for their services, leading to smoother project execution. For contractors and service providers, this clause eliminates the uncertainty of withheld payments and provides greater financial security.
Understanding no retention rights through an example
In a construction project, a contractor agrees to complete a building within six months for a set price. Normally, the client might withhold 10% of the payment until the final inspection is complete, as a retention right. However, with a no retention rights clause in place, the contractor will receive the full payment as they complete each stage of the project, without the client holding any funds back. This allows the contractor to maintain consistent cash flow and reduces the financial burden of waiting for final payments.
In another scenario, a company hires a consultant to provide specialized services. The consultant’s contract includes a no retention rights clause, meaning that the company must pay the full agreed-upon fee without holding back any portion of the payment for later. This ensures that the consultant is compensated on time for their work, regardless of the company’s internal approval process or satisfaction review.
An example of a no retention rights clause
Here’s how a no retention rights clause might appear in a contract:
“No retention rights shall apply to payments made under this Agreement. The Client agrees to pay the full agreed-upon amount to the Contractor as specified in the payment schedule, without any deductions or withholding for retention purposes, unless otherwise agreed in writing.”
Conclusion
No retention rights is a provision in a contract that ensures full payment is made to the service provider or contractor without any amounts being withheld as security or guarantee. This clause is important for maintaining smooth cash flow, ensuring timely payments, and preventing disputes. For contractors and service providers, no retention rights offer financial security by guaranteeing that the full agreed-upon amount will be paid upon completion of work or services. For clients or employers, this provision can foster stronger working relationships by providing clear and fair payment terms.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.