In the United Kingdom (UK) construction industry, clients and main/general contractors have traditionally withheld for a time part of the payment owed to specialty/subcontractors and builders, ostensibly as security against defective work or risk of insolvency. A group of trade associations and professional bodies representing many small and medium-sized businesses want to highlight the following facts about this practice, known as cash retentions.
Some £10.5 billion of the overall construction sector turnover of £220 billion is held in retentions by clients and main contractors from small and medium-sized businesses down the supply chain. An estimated £7.8 billion in retentions has been unpaid in the construction sector over the last three years, and in the same period £700 million of retentions were lost due to upstream insolvencies.
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.
The group believes there is, however, a simple way to reform the system. They note that 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.
Although the government consultation on retentions is still under way, the group believes 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.
The group notes that 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 U.K. economy.
Here's a list of the 23 associations and professional bodies, as well as their signatories, that signed the open letter:
• ECA, electrotechnical and engineering services trade body - Paul Reeve, Director of Business
• Building Engineering Services Association (BESA) - Rob Driscoll, Director of Legal & Commercial
• SEC Group - Trevor Hursthouse OBE, Chairman
• British Constructional Steelwork Association (BCSA) - Sarah McCann-Bartlett, Director General
• Lift and Escalator Industry Association (LEIA) - Nick Mellor, Managing Director
• SELECT - Alan Wilson, Director of Communications
• National Federation of Builders - Richard Beresford, Chief Executive
• Association of Plumbing and Heating Contractors (APHC) - John Thompson, CEO
• Scottish & Northern Ireland Plumbing Employers’ Federation (SNIPEF) - Fiona Hodgson, Chief Executive
• Contract Flooring Association - Richard Catt, CEO
• Structural Timber Association - Andrew Carpenter, Chief Executive
• British Blind and Shutter Association - Andrew Chalk, Director of Operations
• Confederation of Construction Specialists - Gerald Kelly, General Manager
• Federation of Traditional Metal Roofing Contractors (FTMRC) - Nigel Johnston, General Manager
• Lead Contractors Association - Nigel Johnston, General Manager
• National Association of Shopfitters - Robert Hudson, Director
• National Federation of Demolition Contractors - Howard Button, CEO
• Chartered Association of Building Engineers - Tony Ginda, Membership Development Manager
• Federation of Environmental Trade Associations (FETA) - Russell Beattie, Chief Executive
• Scaffolding Association - Robert Candy, Founder
• Stone Federation Great Britain - Jane Buxey, Chief Executive
• Glass & Glazing Federation - Phil Pluck, Group Chief Executive
• Finishes & Interiors Sector (FIS) - David Frise, CEO
For more information, visit https://www.gov.uk/government/consultations/retention-payments-in-the-construction-industry.
