Build UK, CECA and the CPA collectively represent the entire construction supply chain. In a joint response to the government consultation on the practice of cash retention under construction contracts, they say retentions should be abolished via “a phased roadmap”, as the only way to achieve the cultural change needed on this issue.
Cash retention – the withholding of a percentage of payment on construction work until it is certified as having been completed free of defects – is problematic for all parties, the trade associations say, with a significant impact on cashflow and working capital throughout the supply chain. It has been estimated that £10.5bn of the overall construction sector turnover of £220bn is held in retentions.
These issues have been brought into focus with Carillion going into liquidation, leaving an estimated 30,000 creditors, which are predominately small and medium-sized businesses. It is also estimated that Carillion held £800m of retention payments on entering liquidation.
In their joint statement, Build UK, CECA and the CPA say: “The industry is fully committed to achieving zero cash retention and we believe that government must introduce legislation to ensure there is zero cash retention within the industry by no later than 2025. This, supported by an industry-led roadmap would drive the cultural changes required to address the underlying issues of retention, while realising benefits for the industry, its clients and stakeholders.”
However, they add the coda that some other way of clients holding security over contractors needs to be found, as a guarantee against defects. The Building Engineering Services Association has proposed a system where retentions are held in trust by an independent third party, so that although payments are still delayed, at least they feed through eventually even if the client goes bust. Reform, rather than abolition.
The associations say they are keen to work with government to design and develop a scheme to provide security of retentions, if that’s the way it chooses to go.
Build UK chief executive Suzannah Nichol said: “The collapse of Carillion has reinforced the need for significant change in the construction industry, and we urge government to take legislative action to abolish cash retention. The industry is ready to support this by implementing a phased approach to zero retention, in partnership with government.”
CECA chief executive Alasdair Reisner said: "CECA has long supported the abolition of retentions. The use of improperly managed retentions by employers often has substantial impacts on SMEs further down the supply chain as these companies operate within extremely tight margins and reserves. Carillion's collapse has highlighted once and for all how change is needed in our industry. As a first step, we call on government to legislate to abolish cash retentions and work with industry to implement an agreed route map based approach to achieve this ambition."
CPA chief executive Diana Montgomery said: “The industry clearly needs a sensible, ethical and common sense approach to this issue which works more fairly and efficiently for everyone involved. Perhaps more importantly however, the issue of retention is part of a larger issue of the reform required around construction procurement and delivery, which recent events have thrown into stark relief.”