What is Escrow?

Escrow is a crucial term within the construction industry, acting as a neutral third-party arrangement to temper the financial transactions involved in major construction projects. Essentially, it equates to a contractual agreement where a separate entity, usually a bank or other financial institution, holds the funds or assets on behalf of the parties involved until all terms and conditions of the contract are met. More specifically, in construction, an escrow account can safeguard the funds allocated for a project, assuring the contractor that they will get paid as long as they fulfill the agreed-upon work, while simultaneously reassuring the project owner that work will be completed as specified before funds are released. The escrow system is built on trust and transparency and is essential for mitigating financial risks and discrepancies in agreements in the construction sector.