Over 20 trade bodies in appeal to government over retentions

More than 23 industry trade bodies have signed an open letter in an appeal to the government to take immediate action against the practice of retentions.

It comes two weeks after Tory MP Peter Aldous was revealed to be behind plans to change the law on where retentions are held, with the 10 minute bill aiming to amend the 1996 Construction Act and ensure that retentions are held in a third party trust scheme. The first reading of the bill will be on January 9.

Signatories on the open letter include Electrical Contractors Association (ECA) director of business Paul Reeve and Building Engineers Services Association (BESA) director of legal and commercial Rob Driscoll (full list of signatories below).

This says that some £10.5bn of the overall construction sector turnover of £200bn is held in retentions by clients and main contractors from small and medium-sized businesses down the supply chain.

It adds that an estimated £7.8bn in retentions has been unpaid in the construction sector over the past three years, and in the same period £700m of retentions were lost due to upstream insolvencies.

The 23 trade associations and professional bodies say that poor payment practices in construction impact on productivity, innovation and investments, holding back the sector’s overall capacity to do business and invest in the workforce.

“With construction a cornerstone of enterprise in the UK and fundamental to enhancing the country’s built environment, the problem of retentions cannot go on, but needs tackling as a priority,” they say in the letter.

“There is, though, a simple way to reform the system. Regulations should specify that retentions must be held in a statutory retention deposit scheme (rather than in clients’ own bank accounts), an approach which is already being used successfully in Australia.

“The government consultation on retentions is still under way, but we believe that there is no longer any reason to stick with the status quo, or for this issue to be potentially kicked again into the long grass.

“Reforming retentions would be a good way for the Government to show it is truly standing up for the interests of small and medium-sized businesses, and is willing to put them at the forefront of plans for an industrial strategy and the expansion of the UK economy.”

In October, the government launched a new consultation on cash retentions under construction contracts following an independent review.

This found that three-quarters of the contractors surveyed had experienced cash retention in the last three years and of those, 71% had experienced delays averaging several months before receiving retention monies. The deadline for responses to the consultation is 18 January.