The builder offers to release retention if you provide replacement security
Assess proposed retention-to-security substitution including conditions/costs without assuming contractual entitlement.
Corporate Recovery Partners
01 / 06
The cash release comes with a new commitment
A hypothetical builder offers to release cash retention if the subcontractor supplies another form of security. The subcontractor sees an opportunity to improve cash flow and agrees before reading the proposed documents. Compare the complete exchange with the current arrangement. Cash arriving now may be accompanied by costs, conditions or obligations that need separate assessment.
Ask what security is requested, for what amount, in whose favour and under which terms. Keep the original retention provisions and the new proposal together. Do not assume a replacement instrument has the same scope or release conditions as the existing cash retention. Obtain advice on the actual wording rather than relying on a familiar label.
Business.gov.au's contract guidance recommends clearly documenting agreed variations. Ask the lawyer how the proposed exchange would affect the existing arrangement and any remaining claims. This article does not establish a right to substitute security or predict its legal effect. The relevant parties need an appropriately documented agreement before the business relies on the change.
In the hypothetical example, identify the expected cash released, confirmed charges and any funding or collateral requirements associated with obtaining the replacement. Seek the issuer's actual terms rather than estimating from another company's experience. Do not count the full retention as freely available cash if the replacement arrangement has unresolved costs or restrictions.
Ask the advisers how delivery of the replacement and release of the existing retention should be coordinated. Avoid leaving both in place unintentionally or assuming one party has acted because the other has signed. Keep conditions and completion evidence visible. Do not make supplier payment promises from the anticipated release before its status is verified.
Update the retention and security records with the agreed terms and confirmed outcome. CRP can help assess the commercial cash effect. A useful exchange improves the business's position on understood terms, rather than turning a cash-flow opportunity into an unfamiliar security obligation that nobody reviewed.
