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The impact of contract duration on the cost of cash retention

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Hughes, W., Hillebrandt, P. and Murdoch, J. (2000) The impact of contract duration on the cost of cash retention. Construction Management and Economics, 18 (1). pp. 11-14. ISSN 0144-6193

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To link to this article DOI: 10.1080/014461900370906

Abstract/Summary

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

Item Type:Article
Refereed:Yes
Divisions:Faculty of Science > School of Construction Management and Engineering > Business Innovation in Construction
ID Code:4300
Uncontrolled Keywords:bonds; cash flow; contract; finance; retention
Publisher:Taylor & Francis

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