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Industry ramps up pressure on government for retentions reform

Trade associations reiterate call for implementation of new bill for mandatory deposit of retentions in third party schemes as uncertainty from Carillion collapse continues to be felt

BESA and the ECA hope to step up pressure on the government to overhaul cash retentions by calling for the introduction of mandatory third-party deposit schemes in a joint response to a recent consultation on the issue.

Both organisations have urged the government to make it mandatory for retentions to be kept in a trust, as outlined in the Construction (Retention Deposit Schemes) Bill that was recently introduced by MP Peter Aldous to parliament. A first reading of the bill was held on January 9.

BESA has argued that introducing the so-called ‘Aldous Bill’ would be a major first step in reforming cash management in the construction industry and potentially abolishing withholding retentions on building and maintenance work in the future.

The introduction of the retentions bill came just a week before Carillion announced it was entering into liquidation, leading to concerns over the future of thousands of jobs and significant numbers of outstanding payments towed to contractors for work completed.

Uncertainty within the construction supply chain created by the company’s collapse has given further impetus to BESA, the ECA and a number of other industry bodies such as the Specialist Engineering Contractors’ (SEC) Group to call for legislative amendments about how retentions are managed.

The average amount of monies held in retentions between 2014 and 2017 stands at £34,826, according to findings from a survey issued by BESA and the ECA late last year. These survey findings have been submitted in response to a government consultation on the issue of cash retentions in the construction industry that stopped accepting evidence on January 19.

The same survey also found 92 per cent of respondents had faced retentions over a three-year period, with over half paying in excess of £100,000 against contracts. Concerns were also raised over the extended rates of times individuals were waiting to claim back retentions.

BESA legal and commercial director Rob Driscoll said that ensuring an engineering services sector with both capability and capacity to meet UK demand for services would be essential to realising the government’s Industrial Strategy aims. Events such as the collapse of Carillion therefore showed how important guaranteeing prompt and fair payment was to a healthy and productive construction sector, he argued.

BESA and the ECA also cited findings in their response from the consultancy Pye Tait that were commissioned by the government. These findings concluded that £700m in construction cash retentions had been lost over a three-year period due to insolvencies.

Both organisations have claimed that Pye Tait’s research only focused on the top three supply chain tiers and likely underestimated the wider scale of financial difficulties created by retentions.

ECA and BESA said in a statement, “The solution - for retentions to be held in trust – already exists in Australia and has been compared to the UK’s private housing rental deposit scheme.”

Carillion fall-out

Details of the submission have been released as the Official Receiver seeks to try and find new companies to assume responsibility for Carillion’s contracts.

It said in a statement that 989 redundancies had so far resulted from the company’s collapse, with 6,668 jobs “saved” as the final status of the group’s contracts continue to be reviewed.

The Official Receiver added, “Ongoing employment has been confirmed for more than a third of Carillion’s workforce so far as part of the liquidation. There is a lot of interest from potential purchasers in the contracts the company delivered which will see the number of jobs safeguarded continue to increase.”

“Employment could not be secured for a further 59 employees working on paused construction projects and regrettably they will leave the business later this week.”

The statement said that where employees had been transferred to a new provider in place of Carillion “most” were done so on existing or similar terms.

The Official Receiver said, “The process to find new suppliers to deliver Carillion’s contracts continues. I am continuing to engage with staff, elected employee representatives and unions to keep them informed as these arrangements are confirmed.”

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