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Organisations representing some of the construction industry’s biggest contractors are calling on the government to abolish retentions.
Build UK, the Civil Engineering Contractor’s Association (CECA) and the Construction Products Association (CPA) have responded to the government Consultation on the practice of cash retention under construction contracts, which was submitted today.
They are calling for a joint approach of government legislation to abolish retentions, supported by the industry developing and implementing a phased road map, as the only way to achieve the cultural change needed on this issue.
The matter is particularly relevant with the ongoing crisis of Carillion going into liquidation, leaving an estimated 30,000 creditors, which are predominately small and medium-sized businesses.
The group state that in order for the government to deliver the UK’s ambitious infrastructure, housing and commercial needs it must introduce legislation to ensure there is zero cash retention within the industry by no later than 2025.
By doing so they believe there would be a number of positive outcomes for the industry, including:
- An increase in working capital within the supply chain to support investment, productivity and growth;
- Without the threat of unfair payment, there would be an incentive to improve quality of completed works on construction projects as well as increased assurance that any defects that did occur would be rectified appropriately;
- Increased collaboration and transparency in the construction industry by ensuring that any forms of security used against defects would be appropriate and proportionate.
Suzannah Nichol, chief executive at Build UK, 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.”
The CIOB is also backing the call for prompt and fair payment in the construction.
In a statement, the group, said: “The CIOB support the Build UK, Civil Engineering Contractors Association and Construction Products Association ambition to move towards zero cash retentions by the year 2025. There are clearly a number of significant benefits for the culture of the industry, its clients and stakeholders, which could be realised by removing retention.”
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Having worked in the Far East for nearly 20 years, where retentions are the exception rather than the rule, I dont understand the UK problem. In SE Asia Retention Bonds Owner contractor and in selected cases Contractor/Subcontractor replaced retentions many years ago.
“Without the threat of unfair payment, there would be an incentive to improve quality of uncompleted works on construction projects as well as increased assurance that any defects that did occur would be rectified appropriately.”
Hmmm! I understood from my earliest days in the construction industry that a retention sum was there to protect the Client from uncompleted work, regardless of quality, and to give the Client the assurance that any poor quality or defective work would be put right by the Contractor to the Architect’s satisfaction, acting as quasi arbitrator between Client and Contractor.
If the Contractor failed to carry out this contractural requirement, at least the Client had some financial means to have the work carried out by A N Other. Where the words ” incentive to improve” and “increased assurance” fit into their reasoning to abolish retention sums, is beyond me.
Retired Architect of 50 years’ experience.
We are a Scaffolding Contractor. Retentions are deducted from our payments, for up to 2 years after the scaffolding has been dismantled. There cannot be any possible residual liability, there is literally nothing there.
Can your retired Architect from Nuttal give any justification to that?
Frankly speaking I am not yet convinced by the reasoning adduced for abolishing retentions in projects of varying complexities. Giving my over 25 yrs wealth of experience in the industry, I cannot see the rationale for zero retention in projects, it would be too detrimental for clients in the industry when things go wrong. It’s better to examine inherent potential problems and benefits on both sides of the coin, Clients-Contractor relationship before for such removal.
Rather than outright removal it should be improved upon, it can be held in trust at a mutually agreed bank with the contractor, with accruing interest for Contractor as project progresses. This would then be released as per contract provisions. Other operational instruments may be built into it for effective implementation, taking varying circumstances such as Carillion and John Roberts’ problems into consideration.
John Roberts, scaffolder.
No, I can’t see any justification for retention on scaffolding once removed, unless some damage was caused to the building when doing so.
It seems that this is an argument between Contractor and subcontractor rather than the situation referred to in the original article.
The Confederation of Construction Specialists has noted that the Construction Products Association, CECA and Build UK are calling on the Government to abolish the practice of retention in the construction industry by 2025.
Although the Confederation of Construction Specialists applauds the intention, we do not agree that waiting until 2025 is warranted. Abolishment of this outdated and detrimental practice should be immediate. Therefore, we call on the government to abolish retentions immediately and to introduce the appropriate legislation to do so.
The retention issue has been “kicked further down the road” for over 50 years and this needs to stop. The Banwell report (1962) recommended the abolition of retentions, the Latham report (1994) recommended that cash retentions should be protected in a trust account, and the government’s own Business Select Committees (2002 & 2008) recommended phasing out cash retentions.
There are already alternatives available for cash retentions such as Retention Bonds, Performance Bonds and Sub-Contractors Collateral Warranties.
Additionally, Project Bank Accounts (PBAs) are already being widely used on government projects to assure certainty and securement of payment. Therefore, making the use of PBAs on all suitable projects mandatory could be a first interim step to improve the industry’s payment culture.
The then Minister for the Cabinet Office, Francis Maude, said back in 2012 in a Cabinet Office Briefing document – Project Bank Accounts: “We are leading the way with this innovative approach to paying smaller suppliers, and where better to do so than in an industry where more than 99 per cent of businesses are SMEs. Project Bank Accounts means SMEs will be paid faster, freeing them of the burden of juggling with their cash and allowing them to focus on expanding their businesses instead of chasing payments.” The document continued – PBAs not only assure certainty and security of payment; they also ensure that payment is made promptly. It is estimated that if fully implemented PBAs can deliver almost 1% savings in the cost of construction projects.