Specialist contractors back MP Peter Aldous as Ten Minute Rule Bill proposes construction cash retentions are held as protected deposits
The Construction (Retention Deposit Schemes) Bill, which amends the 1996 Construction Act, is being brought by Peter Aldous, the MP for Waveney, and has cross-party support from 11 sponsors for the Ten Minute Rule Bill.
The Bill proposes to bring the holding of retentions in line with the lettings industry that uses independent, third party schemes to hold rental deposits.
The Bill does not seek to abolish retentions, but to address the fact that this money is not protected from upstream insolvencies.30
Research for the government found that every year more than £10.5bn of SME’s potential working capital is locked up in retentions. Insolvencies were found to have led to £700m being entirely lost to SMEs in a single three-year period. This amounts to £20m a month..
Mr Aldous said: “We believe this will have a significant impact on the construction industry…and should pay for itself. In many respects the UK are the laggards with regards to the rest of the world when it comes to retentions. There has been a lot of talk from government in the past about this but the talking has got to stop. Let’s get on with the doing.”
The Bill also has support from some trade associations representing the thousands of SMEs which are involved in the construction industry, ranging from BESA and the ECA to the Federation of Master Builders.
BESA’s Policy Co-ordinator Alexi Ozioro said: “It is clear from the widespread support for the Aldous Bill that politicians from right across the spectrum recognise the system of retentions has been abused. Reform is urgent before more companies go bust and the housing crisis reaches boiling point.”
There are high hopes that the Bill will finally tackle the abuse of retentions, a problem which the HVAC industry has been fighting for more than 20 years.
Building services bodies BESA and ECA have worked together with the Specialist Engineering Contractors’ (SEC) Group and Mr Aldous on developing the amendment to try and curb upstream insolvency and ensure “certainty of cash” for work that has been completed.
SEC Group chief executive Rudi Klein, who has himself been fighting the abuse of retentions for over 20 years said “We now believe that this latest Private Member’s Bill has a good chance of being properly debated given the extent of cross-party support for the Bill. We must succeed because the industry is losing almost £1m worth of retentions each working day because of insolvencies. This does not take account of the millions of pounds lost by way of the costs associated with waiting years for the release of the monies and chasing up the monies.”
Mr Aldous, the Conservative MP for Waveney, said that the reforming intention of the Bill was timely, given both the focus on the construction industry in the wake of Grenfell and the ongoing housing crisis. He said: “I think today there is a greater requirement for [the bill] then there was 22 years ago, when retentions reform was one of the proposals of the Construction Act by Sir Michael Latham. I think it would be a fitting tribute to Sir Michael [who died in November].”
He added, “There is a perfect logic for retentions, but the system is being abused. Retentions shouldn’t run for any more than twelve months, often they are running for an average of a few years. There has been a case of one running not for twelve months but for twelve years.”
ECA Director of Business Paul Reeve said: “The growing contrast between the push for a modern, digital and productive construction industry, and the everyday reality for exposed supply chains is staggering, We must change the retentions system as soon as possible, to protect supply chains.”
He added: “Small businesses can only be the engine room for construction growth and innovation if they can invest with confidence. That means retention monies should be put in trust at the earliest opportunity, and ECA urges the industry to support the Bill being put forward to achieve this.”
BESA legal and commercial director Rob Driscoll said there was now clear political will to try and protect SMEs.
He said: “The fact that it has attracted support from right across the House proves that politicians recognise that SMEs are the lifeblood of construction and FM. They represent a £212bn economic contribution and their delivery enables a further £597bn worth of economic output.”
He added: “This is not an isolated issue. It goes right to the heart of the government’s attempts to improve industrial productivity throughout the UK economy. Securing this cash would unlock the supply chain, enable growth, training and technological evolution, allowing the construction sector to step up its efforts to deliver vital infrastructure and housing projects.”
The bill is being sponsored by 12 MPs in total – the maximum number permitted under the Ten Minute Rule Bill - representing constituencies from across the UK.
The government also is running a consultation on cash retentions that is accepting feedback up until January 19.
Prof Klein said that the Bill would compliment the consultation rather than cut across it, because the consultation could not guarantee to create a direct change in the way retentions are managed.
He said, “The Bill is complimentary, it is simply safeguarding cash, that is all it is doing.”
The ECA’s Head of Public Affairs Mike Giles said: There is nothing controversial about this Bill. We are not arguing for the abolition of retentions at this stage, but simply for SMEs’ money to be protected. This initiative comes at a time when a lot of companies are struggling with cash flow and the threat of insolvency.”
When asked what they would do with retention money if it wasn’t withheld or lost, 48% of contractors told a recent survey carried out on behalf of the government that they would invest in new equipment and facilities;. 40% said they would look to take on more work; while 29% said they would employ more apprentices.
The move has been widely backed by specialist contractors in the HVAC industry.
Flue installer A1 Flue Systems director TJ Duncan Moir welcomed the Bill. She said: “We’re delighted that Peter Aldous MP’s bill is being introduced…because this issue has gone on for too long and is having a detrimental effect on small businesses like us. For example, if we win a £1m project, £50,000 is held as retention money by the construction company to be paid upon completion of the project. However, most companies find excuses not to pay it when a contract has been completed – and we have a real fight on our hands to get it. That £50,000 could be the difference between making a small profit and making a loss on the project.”
Trevor Hursthouse, chair of the SEC Group said: “It is time to say ‘Enough is enough. Practitioners in the sector are out there losing money.”