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Build UK pushes for seven-year retentions phaseout

Response to recent consultation urges cross-industry thinking on providing alternatives to retentions, while also pushing government to outlaw the payment practice by 2025

Build UK is seeking to introduce a “zero retentions” policy throughout the construction supply chain within seven years as a key policy priority to improve trust in the industry and its practices.

The organisation said it is committed to backing a ‘roadmap’ to shift industry away from the practice of holding cash retentions on construction and building services work. This approach would combine introducing new legislation with an industry-backed strategy to ensure an end to the practice of retentions.

This focus on a government-backed legislative approach would be a separate legal mechanism from a bill introduced to parliament in January by MP Peter Aldous requiring retentions to be held in accredited third-party deposit schemes.

A second hearing of the proposed legislation, which was devised with support of another industry bodies such as BESA, the ECA and the Specialist Engineering Contractors’ (SEC) Group is currently scheduled to be heard in April as industry aims to step up pressure for reforming payment practices.

Build UK said that introducing a deposit scheme, as proposed in Mr Aldous’ bill, would provide improved security for withheld funds. This recommendation formed part of a joint response to a government consultation on the issue of retentions. The organisation cited the example of the recent collapse of Carillion and the anticipated loss of outstanding payments as an example of the threat posed to retentions from upstream insolvency.

However, Build UK said it favoured the abolition of cash retentions altogether as part of its consultation response, which was produced in collaboration with the Civil Engineering Contractors Association (CECA).

Build Uk added that it would welcome industry efforts to agree a ‘roadmap’ to introduce zero cash retentions by 2023 that would introduce “robust” monitoring and enforcement mechanisms to ensure compliance.

It has also called for a collaborative approach within the industry to devise alternative solutions to cash retentions, while also setting out proposals for government of possible cash retentions deposit schemes.

BuildUK has called for government to introduce new legislation that would eliminate all uses of cash retentions by 2025, while working with the construction industry to develop alternatives to cash retentions.

The consultation response also calls for parliament to urgently introduce a policy position that would see an end to the use of cash retentions on projects involving central and local government, as well as agencies that would include National Rail or other major capital infrastructure projects.

A commercial model “not fit for purpose”

Introducing a roadmap to phase out retentions use is one of three key priorities set out by BuildUK that it aims to focus on over the next year. Other aims for 2018 include identifying and tackling common types of contractual clauses that can be impossible to fulfil and “perpetuate the inequitable transfer of risk” as well as a drive to publicly benchmark BuildUK members’ payment performance in order for more transparent decision making in the industry. 

The proposals are being put forward following the collapse of construction and service giant Carillion earlier this year. BuildUk has argued that the company’s liquidation reflected the outcome of a major industry sector that was using a commercial model “not fit for purpose”.

The organisation said in a statement, “We have seen up close what happens when we have a combination of lowest price, inequitable transfer of contract risk, poor payment practices and inadequate governance.”

“Yet we can’t say it was unexpected or a huge surprise. We have all known, and talked about for years, the practices and behaviours that would deliver a successful and more profitable construction business environment. So why do we all continue to perpetuate the practices that inevitably lead to business failure?”

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