A campaign to have cash retentions on contracts placed in trust is gathering pace as construction industry leaders are due to meet with the Department for Business, Innovation and Skills this month. An e-petition has also been launched to have a debate about cash retentions held in parliament.
Construction industry organisations welcomed efforts to tackle the issue of cash retentions during the third reading of amendments to the Small Business, Enterprise and Employment Bill. The Bill moves to the committee stage in the House of Lords this month.
At any one time over ￡3 billion is outstanding in the construction industry by way of cash retentions. The National Specialist Contractors Council (NSCC) and Federation of Master Builders (FMB) Payment Survey has identified that more than ￡430 million is withheld in retentions from their members (see page 2).
Debbie Abrahams, MP for Oldham East and Saddleworth, proposed a new clause in the Small Business Bill requiring the publication of companies’ policies, practices and performance on retention monies and subsequently making recommendations about further action to help secure and protect retention monies for small businesses in trusts. The clause was withdrawn when the government said they would work the Opposition on the issue.
Ms Abrahams said: “There is evidence that cash retentions have been used to shore up the working capital of local authorities and tier 1 suppliers. There is a fundamental concern that if tier 1 suppliers become insolvent businesses in the supply chain are at risk of losing their retentions.”
A BIS spokesperson told SpecFinish: “For too long, too many companies have been getting away with not paying small suppliers on time. Through the Small Business, Enterprise and Employment Bill, the government will be making it compulsory for large and listed companies to publish information about their payment performance and practices so those who are not playing fair can be held to account.
“We are also taking specific action to help businesses in the construction supply chain get what they are owed on time, regardless of whether they work on a public or private sector project. All government construction contracts require subcontractors, up to tier 3, to be paid within 30 days. This is on top of legislation that makes it easier to understand what you’ll be paid and when, as well as making it cheaper and easier to refer a dispute to adjudication if things do go wrong. In addition, we are working with the industry on the development of a Construction Supply Chain Payment Charter.”
Professor Rudi Klein, the chief executive of the Specialist Engineering Contractors’ (SEC) Group, said: “Cash retentions are an outdated mechanism that have no place in today’s construction industry. It’s scandalous that these monies are used to enhance the cash flow of companies who hold onto them. Ensuring that the cash is fully protected from misuse can only be done by placing them in trust.”
The e-petition calls for the protection of retentions in construction contracts by placing them in trust and can be found on the government website at http://epetitions.direct.gov.uk/petitions/71753