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Retention vs bank guarantee calculator

Compare the cost of cash retention against a bank guarantee over the life of a contract (working capital tied up versus annual facility fees), and see the release dates for both moieties.

1. Which side are you on?

The cost of cash retention is your money sitting in someone else's account. The cost of a guarantee is the bank fee plus the facility capacity it consumes.

2. The subcontract

Subcontract sum (AUD)

Retention per progress claim (%)

Conventionally 10%.

Capped at (% of contract sum)

Conventionally 5%.

Works duration (months)

Defects liability period (months)

Ordinarily 6 to 12 months.

Your cost of capital (% pa)

What that cash would earn, or what borrowing costs you.

3. Your bank guarantee terms

We deliberately have not pre-filled a fee rate. Australian banks do not publish rate cards for unconditional undertakings. The rate depends on your covenant, the security behind the facility and its size. Every figure circulating online for this is unsourced. Use your own facility letter.

Guarantee fee (% per annum)

From your facility letter, per annum on face value.

Establishment fee (AUD, one-off)

On a $2,400,000 subcontract over 26 months

$120,000 of retention at the cap (5% of the subcontract sum), released as two moieties of $60,000, half at practical completion, half at the end of the defects liability period.

Cash retention costs you

$14,850.00

Opportunity cost on an average balance of $90,000 during the works and $60,000 through the defects liability period.

A guarantee costs you

Enter your guarantee fee rate above and we'll complete the comparison.

4. Where the money has to sit

State or territory

Retention trust obligations apply in New South Wales. Head contractors on projects of $20 million or more must hold subcontractor retention in a separate trust account with an authorised deposit-taking institution, notify the Secretary of the account, and give each subcontractor a ledger at least every three months. Penalties reach $22,000. Section 12A of the Security of Payment Act and Part 2 of the 2020 Regulation.

Why the trust schemes exist

The NSW inquiry into construction insolvency found head contractors using subcontractor retention to pay off previous projects, fund overheads, invest elsewhere and make discretionary purchases. In one collapse the liquidator found more than $7 million of subcontractor retention had gone into working capital, leaving no cash at bank.

The recovery rate when that happens is close to nothing, one witness to the inquiry put it at about three cents in the dollar. Retention frequently represents the subcontractor's entire margin, which is why the Murray Review recommended all cash retention be held on trust down the chain.

There is a pricing consequence too. Quantity surveyors told the inquiry that subcontractors who expect to see only 95% of what they invoice price accordingly, so retention that is routinely withheld gets built back into tenders. The head contractor pays for it either way.

Getting it back

Retention is generally claimable through security of payment legislation. It is part of the price for the construction work, not a separate kind of claim. The Murray Review put it exactly that way, and adjudicators decide these disputes routinely.

Claims usually fail on timing rather than characterisation: when the entitlement to release arises under the contract, and the outer statutory limit for serving a payment claim after work was last carried out. Where the defects liability period is long, those two can collide.

Victoria is now the outlier in the contractor's favour. Its 2026 reforms created a dedicated statutory claim for release of “performance security”, which the Act defines to include retention money, with its own schedule and adjudication process. Guidance written before 2026 describing retention as a possible “excluded amount” in Victoria is out of date.

Indicative modelling only, not financial or legal advice. Guarantee fee rates depend entirely on your banking arrangements and are not published by Australian banks. Use your own facility letter. Retention trust obligations and thresholds differ by jurisdiction and change; confirm with the relevant regulator. Whether retention can be withheld in your circumstances is fact-dependent and turns on the contract.

How construction retention normally works

The conventional Australian arrangement is that the principal withholds ten per cent from each progress claim until the total withheld reaches five per cent of the contract sum, at which point deductions stop.

That five per cent is then released in two moieties. The first half is typically released at practical completion. The second half is released at the end of the defects liability period, which is ordinarily somewhere between six and twelve months afterwards depending on the contract.

The consequence is that half your retention is out of the business for the whole defects period, on top of the construction period. On a long job with a twelve-month defects liability period, money withheld from the first claim can be held for two years or more.

Why a bank guarantee is often cheaper than it looks

A bank guarantee substitutes an unconditional undertaking from your bank for the cash. The principal gets the same security, and you keep the money.

The cost is an annual fee on the face value, plus the impact on your facility. The guarantee consumes limit that could otherwise support working capital, and the bank will usually want security behind it.

Whether that beats cash retention depends on what the cash is worth to you. If retention money would otherwise be funding work in progress, the comparison is against your actual cost of funds, not against zero. Businesses that are growing and cash-constrained frequently find the guarantee is cheaper on any honest accounting, and those with cash sitting idle often find it is not.

Why this calculator asks for your fee rate

Bank guarantee fee rates are negotiated. They depend on your bank, your facility, your security, your trading history and your size, and the range across small and mid-sized builders is wide enough that any published figure would be misleading for most of the people reading it.

We could not verify a defensible representative rate, so the calculator asks for yours rather than inventing one. Your bank or broker can give you the number in a phone call, and it is the single input that most affects the answer.

The same applies to your cost of funds. What retention actually costs you is what the money would have earned or saved, and only you know that.

Retention trusts, and the threshold that keeps getting misquoted

Several jurisdictions require retention money above a threshold to be held in trust rather than mixed with the principal’s own funds. The intent is that if the principal fails, the retention is still there.

In New South Wales the retention trust threshold is twenty million dollars. A ten million dollar figure circulates widely online. It came from a consultation draft that was never adopted, and it is wrong.

Thresholds and mechanisms differ between states and have been amended repeatedly. Check the current position for your jurisdiction rather than relying on any secondary source, this one included, and note that a trust requirement protects the money without changing what it costs you to have it withheld.

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