It's time to ensure action on retentions, say trade federations
The National Federation of Builders (NFB) and other trade federations with members most likely to be affected by the collapse of Carillion are continuing to push for action on retentions.
Retentions have been used in the sector for more than 100 years and were introduced to provide security against defective work or the insolvency of construction firms. They work by the employing party in a construction contract holding a percentage (typically 5%) of the amount due for payment. It is typical that the first half is released at project completion, and the other half is released following the expiry of a ‘defects liability period’ (typically 12 to 24 months) for the project.
The majority of construction contracts include provision for retention but – as the recent demise of Carillion has shown – they do place contractors at risk. It is estimated that around £1bn of retentions was lost when the company went into compulsory liquidation in January.
For this reason a number of clients, main contractors and representative bodies such as the Building Engineering Services Association, the SEC Group and the National Association of Shopfitters are calling for there to be an end to retentions by 2025.
A Private Members’ Bill has been introduced by Peter Aldous MP – Construction (Retention Deposit Schemes) Bill 2018 – which seeks to make it mandatory for retentions to be placed in an independent deposit scheme, similar to the way in which deposits are held in the rental industry
Discussing the issue of retentions, Richard Beresford, chief executive of the National Federation of Builders, said: "While there may be justifications for retentions, abuse across both the public and private sectors saps the supply chain of much-needed cash flow. This has a negative effect on the overall health of the construction industry."
Robert Hudson, chief executive of the National Association of Shopfitters, added: “This obscenity perpetuated by tier one contractors has been allowed to go on unabated for far too long starving the supply chain of much needed cash to invest in training and apprenticeships”