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Wednesday, 3 June

Retention Payments - Open Consultation

A consultation on the practice of cash retention under construction contracts closes at 11:45pm on 19 January 2018.

The consultation is relevant to any party to a commercial construction contract as defined by the construction contracts legislation. It is also relevant to adjudicators, arbitrators and lawyers. While this consultation concerns construction specific legislation it may also be relevant for those with an interest in prompt payment more generally and to insolvency practitioners. The legislation does not apply to residential occupiers.

 

Retention payments in the construction industry: a consultation on the practice of cash retention under construction contracts

Consultation stage Impact Assessment

Retention payments in the construction industry - a research paper prepared by Pye Tait Consulting on behalf of BEIS

 

Industry urged to advise Government to statutory ring-fence cash retentions

An estimated £7.8 billion of retentions has been unpaid across the construction sector over the last three years. The review confirms that retention monies lost to the industry due to contractor insolvencies are of great value – SEC Group estimates this to be £40m each year.

SEC Group has highlighted the abuse of cash retentions which occurs in the industry at the financial detriment of the construction supply chain. The review confirms that:

  • Delays in paying retention monies are commonplace in the construction sector.
  • Currently there is no protection for sub-contractors from upstream insolvencies, as retention monies held against their work are not ring-fenced; multiple contractors within the supply chain could be affected by insolvency of one large main contractor or client.

This is affecting the livelihoods of many SMEs in the construction industry, and we welcome the Government’s commitment to address the issue of cash retentions with the launch of today’s consultation.

SEC Group will stress that for any solution to be effective, it should include protection of cash retentions within a statutory framework. This already exists in other countries such as Canada, Australia and New Zealand.

An SEC Group spokesperson said: "We will examine and respond to all the solutions proposed through the consultation and we are particularly pleased that the option for a deposit scheme is included as one of the possible mechanisms.

"We will be pressing upon Government  that this issue of protecting cash retentions should  now be an urgent priority given the current financial instability in the industry.

"We are urging every company in the industry to respond to this consultation by 19th January 2018."

The Specialist Engineering Contractors’ (SEC) Group represents the following trade associations: British Constructional Steelwork Association, Building Engineering Services Association, ECA, Lift and Escalator Industry Association, SELECT (Electrical Contractors Association of Scotland) and SNIPEF (Scottish and Northern Ireland Plumbing Employers’ Federation)

Article written by Brian Shillibeer

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