The withholding of money due to suppliers until a raft of hurdles have been negotiated has long been a key source of cash for ailing tier one contractors and the cause of misery and collapse of subcontractors. But an end to this established practice of retentions abuse has proved elusive.
Now Build UK has produced a set of standards that it describes as ‘a major milestone on the roadmap to zero retentions’. Build UK and its members support the abolition of retentions in the construction industry by no later than 2025, in accordance with the ambition set out by the Construction Leadership Council in 2014.
The Minimum Standards on Retentions provides detailed drafting guidance for incorporating them into both JCT and NEC forms of contract. They are based on a number of principles, including:
• any arrangements for retention are no more onerous than those implemented by the client in the tier one contract
• retentions are only deducted from payments made in respect of permanent works
• any retention is deducted from the payment immediately following practical completion
• retentions should be progressively phased out on the basis of contract value.
Build UK has also agreed that contracts at any tier with a starting value of less than £50,000 (increasing to £100,000 from 2021) should be retention-free. “This is because retention should be used as security against meaningful losses; the risk on contracts of such values is not high enough to justify retention,” it says.
The updated Roadmap to Zero Retentions, first published by Build UK in 2017, sets out specific actions in a phased approach for the construction industry to achieve zero retentions.
Build UK continues to push for government legislation to abolish cash retention, supported by the roadmap, but the government has not yet made any commitment to deliver policy change on this issue.
Jo Fautley, deputy chief executive of Build UK, said: “Build UK is proactively delivering on its roadmap to zero retentions, and clients, contractors and the supply chain can all implement these practicable steps as part of the transition over the next few years. The construction industry needs to change, and achieving zero retentions is a vital part of becoming a more collaborative and efficient sector.”
Peter Rogers, co-founder of Lipton Rogers, said: “I am very pleased to see the work that Build UK is doing to eliminate the use of retentions through its roadmap. With over 30 years’ experience of not using retentions on our projects, we are firmly convinced that they add nothing of benefit, and are often used by the industry to improve cash flow, without improving the quality of construction.”
Brian Morrisroe, chief executive of Morrisroe Group, said: “Retentions have always been difficult for us to manage and a realistic plan of how the industry could move forward on this issue is most welcome. If clients that do feel the need to withhold a cash retention start to use the new minimum standards in their contracts, it will make a real difference to businesses like ours. Retentions starve the supply chain of much needed working capital but clients will need confidence that we can address the quality issues often experienced in the defects period to enable a move away from retentions.”
The Roadmap to Zero Retentions and Minimum Standards on Retentions and can be found at: www.BuildUK.org/retentions