Alexia Capital Management
Retention Scheme
The Profit Retention Scheme or ‘PRS’ is fundamental to the operation of Total Project Delivery.
All parties in a project participate in the scheme by assuming part of the overall project risk. They do this by having 50% of their profit margin withheld until the successful completion of the project. If the pre-agreed IRR is achieved the retention is released back to each participant. If the IRR is below the pre-agreed figure a percentage of the sum retained is paid to the investor to increase his return, the balance being returned to the participant. The amount paid to the investor depends on the shortfall in the pre-agreed figure up to the full 100% of the retention fund.
The following illustrates the retention scheme:.
Graph illustrates a project facing difficulties. The key point is that apart from the investor all other participants continue to make their margins. The investor suffers the whole loss. This graph illustrates the working of the Profit Retention Scheme. The participants have had 50% of their profit margin withheld. This is paid to the investor. Investors relied on the professionals’ input originally so it is only right that absent overriding considerations their margins should reflect the lower outcome.