Research into the practice of cash retentions in the construction industry has found that an estimated £7.8 billion of retentions has been unpaid across the sector over the last three years. The government is now consulting the industry about introducing a retentions deposit scheme to protect retention money.

The independent research, conducted by Pye Tait Consultancy for the Department for Business, Energy and Industrial Strategy (BEIS), confirms that retention monies lost to the industry due to contractor insolvencies are of great value.

Government commissioned the review following an amendment to the Enterprise Bill laid by Lord Aberdare in 2015 and drafted with help by the Specialist Engineering Contractors’ (SEC) Group.

Key points confirmed by the review are that delays in paying retention monies are commonplace in the construction sector and how currently there is no protection for subcontractors from upstream insolvencies, as retention monies held against their work are not ring-fenced. This means that multiple contractors within the supply chain could be affected by insolvency of one large main contractor or client.

In response, BEIS has launched a consultation on the issue of retentions to include gathering responses on a proposed retention deposit scheme, which would see retention monies held in a separate, ringfenced bank account.

SEC Group’s chief executive, Professor Rudi Klein, commented: “SEC Group welcomes the publication of the independent review on cash retentions in the construction industry.

“The practice of retentions affects the livelihoods of many SMEs in the sector. SEC Group estimates the value of retention monies lost to the industry due to contractor insolvencies each year to be £40 million.

We welcome the government’s commitment to address the issue of cash retentions with the launch of today’s consultation. SEC Group will stress that for any solution to be effective, it should include protection of cash retentions within a statutory framework. This already exists in other countries such as Canada, Australia and New Zealand.

“We will examine and respond to all the solutions proposed through the consultation and we are particularly pleased that the option for a deposit scheme is included as one of the possible mechanisms.”

Professor Klein added: “We will be pressing upon government that this issue of protecting cash retentions should now be an urgent priority given the current financial instability in the industry.

“We urge every company in the industry to respond to this consultation by 19 January 2018.”