Utah Contractor Practice Exam

What are funds withheld to guarantee completion of a project and correction of defects called?

1. Remainder

2. Umbrage

3. Retention

4. Stipulation

The correct answer is: Retention

Funds withheld to guarantee the completion of a project and the correction of defects are referred to as retention. This practice is common in construction contracts where a certain percentage of the contract amount is held back until the project is satisfactorily completed. The purpose of retention is to ensure that the contractor has a financial incentive to finish the work correctly and to address any potential issues that may arise after the work is completed. Retention also serves as a form of security for the owner, ensuring that they have recourse if the contractor fails to meet the requirements of the contract or if defects need to be addressed after the completion of the project. The retained funds provide a safety net for the owner, instilling confidence that any outstanding issues will be resolved before the final payment is made. Other terms like remainder, umbrage, and stipulation do not accurately describe this financial practice in the context of construction. Remainder might suggest leftover funds, umbrage is unrelated and refers to offense or annoyance, and stipulation involves specific conditions or terms within a contract but does not denote the withholding of funds for project assurance.