The announcement follows the government’s Late Payments Consultation, which proposes prohibiting the withholding of retentions as part of what ministers describe as the most comprehensive package of payment reforms introduced this century.

BESA has campaigned for many years to reform retentions and tackle poor payment practices. The Association played an active role in shaping the consultation, including hosting representatives from the Department for Business and Trade at its Council meeting in September, where members outlined the financial damage caused by retentions and entrenched late-payment culture. BESA also submitted a detailed written response at the end of last year.

The consultation drew more than 850 formal responses, with a significant proportion coming from the construction and engineering services sector, highlighting the scale and urgency of the issue.

Alongside the proposed ban, the government has set out a wider package of measures to improve payment behaviour. These include a maximum 60-day payment term, mandatory interest on late payments, and enhanced powers for the Small Business Commissioner to investigate and penalise poor practice.

David Frise, Chief Executive of BESA, said: “This is a landmark moment for our industry and a hugely significant step forward for BESA members and the wider building services engineering sector. We have been campaigning for many years to end the unfair and outdated practice of retentions, which has placed an unacceptable financial burden on specialist contractors.

“The government has listened to the concerns of our members and the wider industry. This decision has the potential to transform cash flow, improve business resilience, and create a fairer, more sustainable supply chain.

“It is particularly encouraging that policymakers engaged directly with our members during the consultation process. That real-world insight has clearly helped shape a more robust and meaningful response.”

Retentions have long been a major concern for SMEs, with many firms facing withheld payments, delayed release of funds, or losing retention money entirely due to upstream insolvencies.

Debbie Petford, Legal and Commercial Director at BESA, added: “We have been waiting a long time for meaningful reform backed by legislation, and the proposed ban on retentions is a critical part of that. Too many businesses have struggled or failed because they have been denied the lifeblood of healthy cash flow.

“This consultation was a once-in-a-generation opportunity to address poor payment practices, and it is extremely positive to see the government taking decisive action. The collapse of major firms in recent years has only reinforced how vulnerable smaller contractors are within the supply chain.

“While there is still work to do on implementation, this is a major step towards creating a business environment where firms can thrive, not just survive.”

The government has signalled that further consultation will take place on how the ban will be implemented, including transition arrangements and establishing a clear definition of retentions to prevent their re-emergence in other forms. Legislation is expected when parliamentary time allows, with implementation likely to take up to two years.

BESA is urging members and the wider industry to remain engaged to ensure the final framework delivers meaningful and lasting change.