THE COMMON construction practice of implementing cash retentions has been a long been opposed by contractors in the industry.
From a client’s point of view cash retentions should provide a way of ensuring that any snags or defects are addressed. However, applying retentions is open to abuse with firms further up the supply chain finding spurious reasons to withhold, typically up to 10% of the subcontract’s value, or blaming subcontractors for damaged work that is not their fault.
In roofing, it is common for contractors to leave a perfectly constructed roof when they come off site only to find subsequent trades have damaged their work, which they are then expected to rectify at their own expense. The alternative is to become embroiled in a legal battle and risk losing further work from their client.
Roadmap to Zero Retentions
Earlier this year, Build UK – the trade association representing main and subcontractors – started a Roadmap to Zero Retentions initiative, aiming to rid the industry’s supply chains of this controversial practice. The roadmap sets out phased actions to achieving zero retentions, including publication of the Minimum Standards on Retentions in July and publishing the retention policies of large public sector clients in November.
The Construction Leadership Council (CLC) estimates £223m of retention payments are lost each year due to insolvency. It also points out the impact they have on cash flow, funds for investment and profitability.
Now, the CLC has backed the Roadmap: “Whilst there is no clear consensus on the part of the industry as to what should replace retentions, there is a clear majority that believes the current situation is unsustainable and requires reform. In recognition of that, the Construction Leadership Council has decided to take the action of endorsing the Build UK Roadmap to Zero Retentions.”
The CLC says Build UK’s retentions roadmap agrees with its own policy that the industry should work towards the abolition of cash retentions. This stated that firms should either not withhold cash retentions, or ensure that the provisions relating to retentions are no more onerous than those included in the contract between the client and Tier 1 contractor. In addition, the Payment Charter set the objective of moving to zero cash retentions by 2025.
Build UK’s Minimum Standards on Retentions include:
- ensuring that any arrangements for retention are no more onerous than those implemented in the main contract, actively ensuring that retention arrangements are filtered down;
- only deducting retentions in relation to permanent works, excluding temporary and/or preliminary works;
- not applying retentions to any contracts with a starting value of less than £50,000, increasing to £100,000 from 2021;
- deducting retentions as a single sum towards the end of the contract to act as surety, not from interim payments prior to the completion of work, which have an impact on cash flow within the supply chain;
- not withholding more than 1.5% of contract value, reducing to 1% from 2021; and
- ensuring that the release of retentions under sub-contracts is not linked to the release of retentions under the main contract, compliant with the 2011 Amendment to the Housing Grants, Regeneration & Construction Act.
The CLC believes that this approach will enable the industry to make progress towards the objective of achieving zero cash retentions by 2025, whilst also allowing the industry and its clients time to adapt, to minimise the impact on cash flow, to put in place alternative surety arrangements, and to improve standards of quality within the industry.
The CLC is urging construction firms and clients to adopt the minimum standards, as a pragmatic means of improving prompt and fair payment practices and helping to create a stronger and more sustainable industry.