Alan Brown, Shadow SNP Spokesperson (Energy and Climate Change), led a Westminster debate on Cash Retentions on the 27 February.  Mr Brown opened the debate by stating “the subject matter has been considered several times, yet for some reason the Government choose to do nothing about it, which becomes ever more frustrating. Small companies continue to suffer cashflow issues because of late payment by retention or, even worse, non-payment, often because of insolvency of the larger company”.  In his speech Mr Brown questioned:

“Why, in the 21st century, are we dealing with unprotected cash retentions?  The worst recent high-level example of the effects of lost retentions was the collapse of Carillion in January 2018. Estimates of lost cash for companies are in the region of £250 million to £500 million. Just think how many small and medium-sized companies went bust as a consequence? How many training opportunities were lost because of the resulting cashflow issues? How many subcontractors just decided that enough was enough, packed up and got out of the game?”

In this debate the Government were criticised for a failure to act despite compelling evidence and repeated assurances.  This was evidenced by not publishing the responses to the Retentions Consultation of October 2017 until earlier in the week.

A number of MPs (cross party) supported the position of Mr Brown including Peter Aldous MP, John Spellar MP, Philip Hollobone MP, Margaret Ferrier MP and Bill Esterson MP.  With Ms Ferrier noting:

“The UK Government’s own research found that smaller construction firms lose almost £1 million in fees per working day due to insolvency issues further up the supply chain. That is untenable. The economy is not well served if smaller firms can be held to ransom by larger firms, placing every other contractor in the supply chain in a precarious position.”

Mr Brown asserted that “The thing is that a working deposit retention scheme solution is at hand. Industry bodies and a major Tier 1 contractor have been working collaboratively with academics, banking and financial experts, insurers and software developers to develop an IT platform as a digital solution to ring-fencing cash retentions. The key features in the proposed retention deposit clearing house scheme are that the aggregate of the retention moneys handed over to the client will be held in a bank account and ring-fenced by a trust, and allocated to all supply chain firms as is relevant to their deductions. Also, firms will be able to use an app for online checks of the amount of their retentions held in the scheme. An insurance policy will be made available to the client to cover any shortfall in the scheme in case there is non-compliant work that is not rectified, because of insolvency, for example. The scheme will be regulated by the Financial Conduct Authority. The costs of administering the scheme are estimated at just £23 per £10,000 of main contract value, so cost is clearly not a barrier to introducing it.”

In his response Construction Minister Nadhim Zahawi MP stated:

“Given the evident complexity of the policy issues, as we have discussed, it would be premature to commit to introduce a retention deposit scheme. In addition, costs are driven by what the industry wants to adopt and what it wants to resist. Unfortunately, the lack of consensus to date means that a preferred solution has not yet emerged. We will continue to work with stakeholders and I would like to think that we can get to a place where we have that consensus.”

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You can read the full debate here

You can read the response to the consultation and Parliamentary Briefing paper here

To find out more on the Scottish Governments Consultation on Retention Deposit Schemes, click here