Retention cash: make me honest – but not yet

How many subcontractors are knocking on your door with this letter: “Dear Mr Main Contractor,“Thank you for your enquiry/order. We would like to bring to your attention our company policy on retention.

“As a professional and reputable specialist contractor, we are committed to delivering work to a high standard in accordance with your specification. We are a member of [name of trade association], which in turn is a member of the National Specialist Contractors’ Council (NSCC). NSCC has a clear policy on the withholding of retention and, in accordance with the NSCC no-retention policy, we no longer accept cash retention on our works.

“As a long-standing member of your supply chain that has always completed work to your satisfaction, we hope that you understand this position and we will continue to ensure that our work is delivered to the highest standard.

“We would be happy to discuss this with you in more detail, so please do not hesitate to contact us if you have any queries.

“Yours sincerely, etc.”

There is a very big temptation not ever to pay out the final lump of retention to the subcontractors. and the smaller the lump of cash, the greater chance it will stick fast in the main contractor’s bank

And what do you main contractors say in return? Do you point to your main contract and, with a heartfelt cry, ache to see retention disappear too? In other words, you too would welcome a no-retention policy up there in your main contract. And if it were so, you sob, then you would gladly give it the heave-ho from your subcontract! Sure?
The influential NSCC has put its foot down. The 32 trade associations within the NSCC have decided to campaign to eliminate cash retention. Folk up the food chain, such as Crossrail (£15.9bn to spend on construction), have said goodbye to retention, and they expect that policy to run down the supply chain. Mind you, developer Stanhope did all that 20 years ago. Why? The idea is to trust the subcontractors to do a decent job. The NSCC says: “NSCC believes that the withholding of retention is an outdated practice, which is unnecessary in the modern construction industry.

“The best guarantee of quality lies in the choice of a competent and qualified supply chain, and NSCC specialist contractors are committed to seeking to attain the highest applicable standards in health and safety, training and technical performance.

“NSCC recommends that, while its specialist contractors are free to negotiate their own respective contractual terms, they do not accept cash retentions.”

And you might say, for retention, “Good riddance to bad rubbish”. Ah, but, there is a wee snag. No, it’s nothing to do with holding money and teasing the subbie to come back and tinker with a few defects. It’s actually a snag about making a bob or two out of this retention malarkey. There is a very big temptation not ever to pay out the final lump of retention to the subcontractors. And the smaller the lump of cash, the greater the chance that it will stick fast in the main contractor’s bank account.

If you listed out the hundreds of subcontractors showing a balance of retention debts, the cash total is lottery prize sized

Consider this: the usual retention taken almost on autopilot is 5% or 3%. Half is released to the main contractor on practical completion of the main contract. With luck and a fair wind, the subbie will get its half too, but not until it gets an inkling that the money is already in the main contractor’s hands. A rumpus, a good amount of whining and moaning, usually sees the first half of the final flow at last. As for the final half, the rigmarole in the main contract is loony and hard work; and as for the subcontractors getting their final half from the main contractor, they are faced with severe memory loss on the part of the payer.

The truth is that if all the retention fund balances were paid out, many an enterprise would be out of cash.

If you listed out the hundreds of subcontractors showing a balance of retention debts in any one medium-size contracting outfit, the cash total is of lottery prize proportions. And if on a wet Friday afternoon a subbie in darkest Islington remembers to chase up his money and sends out a raft of chase-up letters, nobody will answer. Then he will forget about it or write it off as too much nuisance to chase. Give up retentions? Dear me, no thanks, say some.

Tony Bingham is a barrister and arbitrator at 3 Paper Buildings Temple