Retention money in government works contracts: how much is held and when you get it back

Retention money is the slice of every running bill that a government buyer keeps back on a works contract. It isn't a fee or a fine: it is your money, held as security, and it comes back at completion or after the defect period, depending on the contract, unless the buyer uses it to fix your defects or recover what you owe. This guide explains how much is held, how it differs from EMD and performance security, and when you get it back.

Retention money meaning

The Department of Expenditure's Manual for Procurement of Works 2025 (the works manual, para 5.1.3) explains it this way: in addition to performance security, works contracts "usually provide for a percentage (usually five percent) of each running bill (periodic/ interim payment) to be withheld as Security Deposit/ retention money until final acceptance."

So the retention amount is deducted from each bill you are paid, instead of being given upfront. You'll see it under different names:

• Security deposit (SD), in CPWD contracts (GCC 2023, Clause 1A).
• Retention money, in the central works manual and MoRTH's EPC agreement.
• Retention charges or "retention" in a bill's deductions, in some departments' paperwork. Despite the word, it isn't a charge: it is refundable.

How much retention money is deducted

The rate is written into your contract. These are the standard rates in the main central documents:

CPWD example. On a tendered amount of ₹2 crore, the security deposit is ₹5 lakh. If your first running bill is ₹40 lakh, ₹1 lakh is kept back. Deductions stop once ₹5 lakh has been held, which happens when your bills add up to ₹2 crore.

MoRTH EPC example. On a contract price of ₹100 crore, retention stops at ₹5 crore. At 6% a payment, you reach that cap after about ₹83 crore of payments.

This is on top of your performance security. In CPWD, the performance guarantee is 5% of the tendered value or the estimated cost put to tender, whichever is higher, and more again if your bid is below 80% of the estimate (CPWD order of 27 February 2026). The General Financial Rules keep the total in check: since a Department of Expenditure order of 1 January 2024, the "amount of performance security plus security deposit/ retention money for procurement of works will continue to be 3% to 10%". These are central rules; state departments follow their own, so always read the figure in your tender.

Retention money vs security deposit vs performance security

The works manual treats "security deposit" and "retention money" as one thing. Both differ from EMD and performance security:

EMD protects the buyer while bids are open; see EMD in tender. Performance security, usually a bank guarantee, covers the whole contract; see performance security in tenders. Retention builds up from your own bills and mainly covers defects and dues at the end of the job.

When retention money is released

Under the central works manual

Para 5.1.3 of the works manual sets a two-step release:

1. Half on the taking-over certificate, when the department takes over the work. If sections are taken over separately, the engineer releases it in proportion to their value.
2. The other half 60 days after the defect liability period or warranty period ends, or on final payment if that comes earlier, on the engineer's certificate. If different parts have different defect periods, the latest one counts.

In CPWD contracts

CPWD's GCC 2023, used in CPWD tenders, holds the whole security deposit to the end:

• Clause 17: it is not refunded before 12 months after the completion certificate (6 months for works costing ₹10 lakh or less, except road works), or until the final bill has been prepared and passed, whichever is later.
• Road works: if the Engineer-in-Charge thinks half is enough to cover your liabilities, half can be refunded after 6 months and the rest after 12 months.
• Part completion: if a part completion certificate was recorded, the deposit is released only after the final completion certificate and the end of the defect liability period, whichever is later (amendment of 1 April 2024).
• Labour clearance (Clause 41): it is refunded if no labour complaint has been received from the labour officer by the due date. If one has, the amount needed to settle it is deducted first.
• E&M maintenance and operation works: within one month of final payment or the end of the maintenance contract, whichever is earlier.

If your final bill is delayed, CPWD's procedure (SOP 5/29) lets an officer not below Superintending Engineer release as much of the deposit as possible after assessing likely recoveries, and asks the site office to prepare the refund paperwork without waiting for you to apply.

In MoRTH highway EPC contracts

Clause 7.5 of MoRTH's Standard EPC Agreement returns retention money earlier than the other two: within 15 days of the Completion Certificate, after adjusting anything taken for your defaults. Defects after completion are covered by the performance security instead, which stays until 60 days after the defect liability period (Clause 7.4). Find live highway work under NHAI tenders.

Replacing retention money with a bank guarantee

Held cash ties up your working capital, so the central rules and CPWD let you swap it for a guarantee:

• Central works manual: you may replace the retention amount with an unconditional bank guarantee or insurance surety bond from a bank the buyer accepts, once retention reaches half its limit and again when it reaches the full limit. The guarantee is then released in the same two halves.
• CPWD Clause 1A: the security deposit deducted can be released against a bank guarantee from a scheduled bank once at least ₹5 lakh has accumulated. Each guarantee, except the last, must be for at least ₹5 lakh, and its validity must be extended whenever the contract time is extended.
• Disputed arbitration awards: where a department has challenged an arbitral award, Rule 227A of the General Financial Rules allows retention money and other amounts withheld to be released against a bank guarantee, if you are otherwise eligible under the contract.

A guarantee uses your bank limit and the bank charges for it, so compare that cost with the cash being held.

When retention money can be used against you

Retention is your money, but the buyer can take from it before refunding:

• Defects. If you don't fix defects during the defect liability period, CPWD can get them fixed by others and deduct the cost from your security deposit (Clause 17). MoRTH EPC lets the authority appropriate retention money as damages for your default (Clause 7.5).
• Compensation and other dues. Compensation for delay and other sums payable under the contract can be recovered from the deposit. If it is reduced this way, CPWD expects you to make it good within 10 days (Clause 1A).
• Other claims. CPWD's Clause 29 lets the department withhold, and keep a lien on, money from your security against any claim it has on you.

On termination, MoRTH's EPC agreement treats retention money as if it were performance security (Clause 7.5).

Accounting tips for contractors

• Book the full bill, not the net cash. Record the retention as money receivable from the department, not as an expense or a discount.
• Keep a retention register for each contract: agreement number, amount held, completion certificate date, defect period end, release due date, and any bank guarantee given in its place with its expiry date.
• Reconcile every bill. Check each deduction on the department's memorandum of payment (security deposit, income tax, other taxes and recoveries) against your ledger. Tax deducted at source on your bills should appear in your annual tax statement: Form 26AS for years up to 2025-26, Form 168 from tax year 2026-27.
• Ask your chartered accountant how GST and income tax apply to the retained part of your bills, so you don't pay tax twice or late.
• Build it into your price. On a ₹1 crore job with 5% retention, ₹5 lakh can stay locked up until after the defect period, on top of your performance security. Factor that cash cost into your rates; our guide on how to fill a BOQ covers pricing.
• Claim it on time. CPWD's SOP 5/29 says a security deposit refund claim is governed by the Limitation Act, with a three-year period counted from when the refund falls due. Unclaimed amounts are eventually moved to government account.

Whenever you open a new civil works tender on GovtTenderHub, find the security deposit and performance guarantee clauses in its documents before you price it.

Common questions

What is retention money in construction?

It is a percentage of each running bill that the buyer keeps as security for proper completion, usually until the defect liability period ends. The central works manual puts it at usually 5% of each bill.

Is retention money the same as a security deposit?

In central government works, yes. The works manual uses both names together, and CPWD calls it the security deposit. It is different from performance security, which is a separate guarantee you give after the award.

How much retention is deducted from a running bill in CPWD?

2.5% of the gross amount of each running and final bill, until the total reaches 2.5% of the tendered amount (Clause 1A of GCC 2023). Your performance guarantee is separate.

When is retention money released?

Under the central works manual, half when the work is taken over and half 60 days after the defect liability period. In CPWD, after 12 months from the completion certificate (6 months for works up to ₹10 lakh, except roads) or the final bill, whichever is later. MoRTH EPC contracts refund it within 15 days of the Completion Certificate.

Can retention money be replaced by a bank guarantee?

Usually yes. The works manual allows an unconditional bank guarantee or insurance surety bond in its place, and CPWD releases the deposit against a scheduled bank's guarantee once ₹5 lakh has built up.

Can the department keep my retention money for another contract's dues?

It can withhold amounts you owe before releasing it. CPWD's Clause 29 gives the department a lien for claims against you, and its November 2025 advisory tells offices to recover dues from the same or other contracts first.