Retention funds and escrow holdbacks in M&A deals and EPC projects remain frozen when defect liability windows pass untracked. Learn how to release corporate collateral.
Hamza
Co-Founder & Operations Lead
In mergers and acquisitions (M&A) and large-scale engineering, procurement, and construction (EPC) contracts, escrow arrangements are the standard mechanism to mitigate transaction risks. In M&A deals, buyers hold back 10% to 20% of the total purchase price in a third-party corporate escrow account (with banks such as ICICI, Standard Chartered, or JPMorgan) to secure the seller's representations and indemnities.
Similarly, in EPC construction and capital equipment delivery, project owners withhold 5% to 10% of each milestone invoice as retention money. These funds remain locked until the contractor successfully navigates the post-completion inspection period.
In commercial project contracts, the Defect Liability Period (DLP) begins on the date the Completion Certificate or Commercial Operation Date (COD) is formally achieved. The DLP typically spans 12 to 24 months, during which the contractor is legally obligated to repair any engineering or material defects at its own expense.
If the client files no formal defect claims prior to the DLP expiration date, the contractor is legally entitled to the unconditional release of the retention money and the cancellation of outstanding performance bonds. However, contractors frequently neglect to track this date, leaving valuable working capital tied up for years.
Escrow agents operate under rigid fiduciary protocols. An escrow bank will not disburse funds based on an informal request from either party alone. The release requires the execution of a formal Joint Written Instruction (JWI) signed by authorized signatories of both the buyer and seller.
Escrow agreements often include a unilateral release mechanism: if the seller issues a formal release demand upon the expiration of the indemnity period, the escrow agent will release the funds unless the buyer lodges a formal objection within a specified notice window (often 15 to 30 days). Tracking this notice window is critical to preventing wrongful disbursements or unnecessary delays.
Corporate treasury and legal departments managing multiple transaction escrows, performance bank guarantees, and retention funds need a unified monitoring platform. RenewOS tracks escrow agreement milestones, DLP expiration dates, and authorized signatory lists.
Automated reminders alert treasury teams 60 days before escrow release dates, streamlining the preparation of joint instructions and ensuring prompt recovery of corporate funds.
This article is published for educational and operational workflow planning purposes only and does not constitute formal legal, accounting, tax, insurance, or engineering advice. Statutory rules, fine schedules, and filing deadlines vary by jurisdiction and are subject to legislative amendment. Always consult with certified legal counsel, an authorized tax professional, or your local regulatory authority for official requirements. All third-party company, brand, and product names referenced are the registered trademarks of their respective owners and are used purely for identification and comparative reference under nominative fair use doctrine.
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