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News » UK » Government seeks views on retentions reform » published 25 Oct 2017

Government seeks views on retentions reform

Having published solid evidence of subcontractor abuse in the construction industry through the practice of cash retention, the government is holding a consultation process on the issue.

Business minister Lord Prior of Brampton said: “Despite examples of positive changes, there is some evidence that there is still scope for improvement in relation to payment practices in the construction sector. Concerns have been expressed by parts of the industry about unjustified late and non-payment of retention payments and the impact on small businesses.”

However, rather than using the information gathered to inform immediate legislation, the government’s preferred next step is more talk.

The Department for Business, Energy & Industrial Strategy has published a consultation paper “to seek information on the practice of cash retention under construction contracts". It also wants views on the findings of a research document that it commissioned from Pye Tait and has now published.

Pye Tait found that retention monies being lost due to contractor insolvency was affecting a large proportion of contractors who use retentions. It also found evidence that a proportion of construction customers may be making payment of the retention conditional on the performance of obligations under another contract.

“This indicates that some contractors may still need to be informed about what the 2011 amendments to the ‘Construction Act’ mean for payment of retentions,” the consultation document says;

With unjustified late and non-payment of retention monies a significant issue for some contractors, the use of project bank accounts is suggested as an alternative.

Two organisations quick off the mark to say that they would definitely be responding were the Electrical Contractors' Association (ECA) and the Building Engineering Services Association (BESA). They said that any cash held as retentions by construction clients and major contractors ‘must be held in trust at the nearest opportunity’.

They want to see cash retentions completely phased out to protect suppliers from poor retention practices.

ECA director of business Paul Reeve and BESA commercial and legal director Rob Driscoll jointly commented: “While the significant and unacceptable problems of cash retentions in construction have been identified by independent research, and even acknowledged by government, the government has chosen to consult once again on the extent of the problem and what to do about it.

“The BESA and the ECA will continue to call on the government to ensure that all cash retentions are held in trust as soon as possible, and to phase them out entirely by the early 2020s. For the good of the economy, and the supply chain, we need a firm commitment to remove the retentions issue.”

The ECA and the BESA say that £10.5bn of the overall construction sector turnover of £220bn is held in retentions. They say that £7.8bn has been unpaid across the construction sector over the last three years. Some £40m of retentions is lost by small firms each year due to upstream insolvencies. Banks do not consider unprotected retentions as security for lending purposes to SMEs.

 

The government’s consultation document is at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/654258/2017.10.23_Retentions_Payments_Consultation_FINAL.pdf

You can reply to the consultation online at: beisgovuk.citizenspace.com/im/retention-payments-in-the-construction-industry

The deadline for responses is 19th January 2018.

 

 

 

MPU

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This article was published on 25 Oct 2017 (last updated on 27 Oct 2017).

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