Within the construction industry, part of the payments owed to specialist contractors and builders are often retained by main contractors and clients as a means of safeguarding against risk of insolvency or defective work.
Of the construction sector's £220 billion, approximately £10.5 billion is held in retentions from small and medium-sized businesses further down the supply chain. Over the last three years, retentions which have remained unpaid within the sector amount to £7.8 billion. Meanwhile, upstream insolvencies have resulted in the loss of £700 million of retentions during the same period.
The undue witholding of retentions is a major concern for the sector, and on January 9 2018 Peter Aldous MP will introduce a Parliamentary Bill to secure the reform of the practice and protect cash retentions through a retention deposit scheme.
The letter has addressed the impact of cash retentions and the need for reform:
“Poor payment practices in construction affect productivity, innovation and investment, holding back the sector’s overall capacity to do business and invest in the workforce. With construction a cornerstone of enterprise in the United Kingdom and fundamental to enhancing the country’s built environment, the problem of retentions cannot go on, but needs tackling as a priority.
“There is, though, a simple way to reform the system. Regulations should specify that retentions must be held in a statutory retention deposit scheme (rather than in clients’ own bank accounts), an approach which is already being used successfully in Australia.
“The Government consultation on retentions is still under way, but we believe that there is no longer any reason to stick with the status quo, or for this issue to be potentially kicked again into the long grass.
“Reforming retentions would be a good way for the Government to show it is truly standing up for the interests of small and medium-sized businesses, and is willing to put them at the forefront of plans for an industrial strategy and the expansion of the UK economy.”