Top contractors hold more than £1bn in retentions
An analysis of the accounts of the UK’s top 12 construction companies suggests that they are owed more than £1 billion in cash retentions.
The analysis, carried out for the Specialist Engineering Contractors’ (SEC) Group, found that nine of the top 12 published separate figures for retentions. This confirmed that the nine are collectively owed more than £800m in cash retentions. Extrapolating from this gives £1bn for the 12.
The study says that over 80% of this sum would have comprised the retentions withheld by these companies from their supply chains, the overwhelming majority of which would have been small and medium sized enterprises (SMEs – a business with fewer than 250 employees). One contractor’s accounts showed that it was holding a retention amount against its supply chain that was significantly greater than the amount withheld against it by its clients.
SEC Group chief executive Rudi Klein said that the analysis was timely given that publication of a government review of the retentions system was imminent.
He said: “There is no other industry sector in the UK where such a large amount of cash is at risk, especially for SMEs. By the time these monies are released back to SMEs in the supply chain some years would have elapsed. In a high proportion of cases the retention represents the profit element for SMEs.”
SEC Group estimates that £400m would have been held by public sector bodies. In these cases, the retentions provided by the top contractors would not be at risk (since public bodies do not go into insolvency), but there is still a significant risk for the SMEs lower down the supply chain.
SEC Group has been calling for legislation to protect or ring-fence cash retentions to remove the insolvency risk and to ensure that retentions are released on time.
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This article was published on 15 Feb 2017 (last updated on 15 Feb 2017).