Abolish Retention in Construction

Representatives of the construction industry and supply chain have called on the Government to abolish the practice of retentions in the construction industry.

Representing the supply chain, from clients and contractors, and manufacturers and suppliers, Build UK, the Civil Engineering Contractors Association (CECA), and the Construction Products Association (CPA), have responded to the Government consultation on the Practice of Cash Retention under Construction Contracts.

The associations have made a case for a joint approach of Government legislation to abolish retention, supported by the industry developing and implementing a phased roadmap, as the only way to achieve the cultural change needed on this issue.

They say that 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, having a significant impact upon cash flow and working capital throughout the supply chain.

These issues have been brought into stark focus with Carillion going into liquidation. Their insolvency has left an estimated 30,000 creditors, which are predominately small and medium-sized businesses, high and dry, while it is also estimated that the company held £800M of retention payments on entering liquidation.

In order to deliver the UK’s ambitious infrastructure, housing and commercial needs, the way construction projects are designed, procured, delivered and operated needs to be transformed. The current business model requires change with operating margins unsustainable for the level of risk that companies are taking on.

The industry is fully committed to achieving zero cash retention and this group is calling for legislation to be introduced, which will ensure there is zero cash retention within the industry by 2025.

Whilst committed to abolishing cash retention, Build UK and CECA members recognise that alternative solutions must be identified and made available to the industry in order to provide security in the event of defects.

Build UK Chief Executive Suzannah Nichol MBE 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.”

Alasdair Reisner, Chief Executive at CECA, 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.”

Dr Diana Montgomery, Chief Executive at CPA, 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.”

 

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