The CLC acknowledges that the practice of withholding cash retentions within the construction sector is ‘controversial’, it says.
It has now issued a statement giving its support to the ‘Roadmap to Zero Retentions’ published six months ago by contractors’ group Build UK.
It is not clear why it has taken six months for the CLC to reach this decision, although it doesn't meet very often.
Build UK’s retentions roadmap, also backed by the Civil Engineering Contractors Association (CECA), proposes a phased approach to achieving zero retentions by 2023 and no later than 2025. The roadmap includes milestones, including publication of retention policies by public and private sector clients, and the introduction and adoption of the Build UK Minimum Standards on Retentions, which incorporate and build on the Payment Charter commitments. These standards include:
• ensuring that any arrangements for retention are no more onerous than those implemented in the main contract, actively ensuring that retention arrangements are filtered down
• only deducting retentions in relation to permanent works, excluding temporary and/or preliminary works
• not applying retentions to any contracts with a starting value of less than £50,000, increasing to £100,000 from 2021
• deducting retentions as a single sum towards the end of the contract to act as surety, not from interim payments prior to the completion of work, which have an impact on cash flow within the supply chain
• not withholding more than 1.5% of contract value, reducing to 1% from 2021; and
• ensuring that the release of retentions under sub-contracts is not linked to the release of retentions under the main contract, compliant with the 2011 Amendment to the Housing Grants, Regeneration & Construction Act.
Build UK criticised government inaction when it first published its roadmap back in June 2019. Deputy chief executive Jo Fautley said at the time: “Whilst the lack of government response is disappointing, Build UK is proactively delivering on its roadmap to zero retentions. We believe that 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.”
On 9th December the Construction Leadership Council – a panel of government appointees, sponsored by the Department for Business, Energy & Industrial Strategy (BEIS) and co-chaired by whoever the minister of the moment may be – published its response.
“Whilst there is no clear consensus on the part of the industry as to what should replace retentions, there is a clear majority that believes the current situation is unsustainable and requires reform,” the CLC said.
“In recognition of that, the Construction Leadership Council has decided to take the action of endorsing the Build UK Roadmap to Zero Retentions, which has been developed and is supported by the clients, construction firms and trade associations within the membership of Build UK and CECA, as a means of improving the transparency and fairness of payment practices in relation to retentions.
“This will build upon the existing CLC policy, as set out in the 2014 Construction Supply Chain Payment Charter, that the industry should work towards the abolition of cash retentions. This stated that firms should either not withhold cash retentions, or ensure that the provisions relating to retentions are no more onerous than those included in the contract between the client and Tier 1 contractor. In addition, the Payment Charter set the objective of moving to zero cash retentions by 2025.
The CLC said that Build UK’s roadmap provided an approach that “will enable the industry to make progress towards the objective of achieving zero cash retentions by 2025, whilst also allowing the industry and its clients time to adapt, to minimise the impact on cash flow, to put in place alternative surety arrangements, and to improve standards of quality within the industry.”
It concluded: “Therefore, the CLC urges firms within the industry and construction clients to support the roadmap and adopt the minimum standards, as a pragmatic means of improving prompt and fair payment practices and helping to create a stronger and more sustainable industry.”