A hard-hitting action plan which attempts to finally put the issue of cash retentions in construction to bed has been issued to the Government by leading engineering services bodies the BESA and ECA. The submission follows the collapse of Carillion last month, which has severely affected many subcontractors.
In the submission, the two trade bodies called on the Government to put retentions in trust as a key first step, with the Peter Aldous Bill seen as a suitable legislative vehicle. This would then be a stepping stone on an industry roadmap to full abolition of retentions in the near future.
The joint submission also includes new findings from a joint survey issued in late 2017, as follows:
- 92% of respondents said they have faced construction retentions during the last three years, with two-thirds of current contracts involving retentions;
- 56% faced total retentions of over £100,000 against current contracts;
- Many respondents wait longer to get their retention monies than the typical 12 months defect liability period – six months more on average;
- The average amount of monies held over the past three years, which has not been paid back after the completion date and is thus outstanding, is £34,826; and
- The average retention was 5%, which exceeds many supply chain profit margins.
ECA Director of Business Paul Reeve commented: “Prompt and fair payment is essential for industry collaboration, increased productivity and investment. Putting retentions in trust is vital to making early progress with protecting and supporting SMEs. Looking forward, it would help the industry not just to survive, but to modernise and deliver on the new sector deal.”
BESA Director of Legal and Commercial Rob Driscoll commented: “The Government’s Industrial Strategy relies on an engineering services sector which has both the capability and capacity to continue to deliver against UK demand. Recent events have shone a spotlight on just how critical prompt and fair payment is to ensure a financially healthy, innovative and productive sector best achieved through a move away from the use of retentions.”
The joint submission also backed conclusions from consultancy Pye Tait that withholding retentions is widespread across construction. However, BESA and ECA noted that Pye Tait’s research was only based on the top three supply chain tiers, thereby underestimating the scale of the problem.
The ECA and BESA solution – for retentions to be held in trust – already exists in Australia and has been compared to the UK’s private housing rental deposit scheme. The trade bodies noted that had such a scheme existed before the Carillion collapse, this would have protected many subcontractors, and the fallout must serve as a catalyst for change.
The BESA and ECA made the submission in the context of the Government’s consultation into the practice of retentions in construction, which closed in late January.