ASSESSING THE IMPACT OF RETENTION FEE PRACTICES ON PROJECT CASH FLOW, CONTRACTOR PERFORMANCE, AND DISPUTE OCCURRENCES

Purpose: Retention fee practices are widely applied contractual mechanisms in the construction industry to ensure quality compliance and safeguard client interests. Despite their intended benefits, concerns persist regarding their influence on critical project success indicators.

Design/methodology/approach: A quantitative survey research design was adopted. A total of 204 structured questionnaires were distributed to construction professionals, of which 199 valid responses were retrieved, representing a response rate of 98%. Data were analyzed using descriptive statistics (frequencies, percentages, means, and standard deviations), while regression analysis was employed to assess the effect of retention fee practices on project cash flow, contractor performance, and dispute occurrences.

Findings: The regression results indicate that retention fee practices explain approximately 67%, 59%, and 69% of the variations in project cash flow, contractor performance, and dispute occurrences, respectively. It reveals that retention fee practices have a significant negative effect on project cash flow and contractor performance, while exerting a significant positive effect on dispute occurrences (p < 0.05). This suggests that poorly managed retention systems adversely affect contractor liquidity and performance while increasing the likelihood of disputes.

Research limitations/implications: The study is limited to construction professionals involved in building projects and relies on self-reported data, which may be subject to response bias. Nevertheless, the findings provide empirical evidence on the multidimensional effects of retention fee practices and contribute to the growing body of knowledge on construction payment mechanisms.

Practical implications: The study recommends the adoption of clearly defined and time-bound retention release policies with enforceable contractual timelines, particularly at the project close-out stage. Such measures would improve contractor liquidity, enhance performance efficiency, and reduce dispute occurrences, thereby promoting more effective project delivery.

Originality/value: This study offers an integrated empirical assessment of the effects of retention fee practices on project cash flow, contractor performance, and dispute occurrences within a single analytical framework.