Rail infrastructure group announces it will cease using retentions at a time when building services sector is trying to push its own legislative reforms of payment practices
Network Rail’s pledge to reform prompt payment practices and abolish the use of retentions in its contracts has been hailed as a strong template for the wider construction industry and building services sector to follow.
The organisation, which is responsible for managing rail infrastructure in the mainland UK, has announced said it was making significant changes to its contract terms for suppliers and their subcontractors during the five-year funding period between 2019 and 2024.
Network Rail said in a statement, “The most substantial changes to contract terms will commit suppliers to pay their subcontractors within 28 days and remove the use of retentions on those payments, something that has long been an area of debate across the industry due to the detrimental effect it can have on smaller suppliers.”
A range of building services groups have lent theirsupport for legislation that would mandate that retentions are held in third party deposit schemes in order to curb widespread cash flow uncertainty resulting from the practice. Network Rail’s lead on ending retentions use could add further pressure for industry reform, the Civil Engineering Contractors Association (CECA) has argued.
CECA chief executive Alasdair Reisner said the rail group’s decision would be a “game changer” over how retentions were viewed and used in the wider construction industry.
He added that Network Rail’s pledge to curb the practice of retentions reflected three years of work to ensure its supply chain was prepared for significant payment changes without causing cashflow issues, especially for smaller companies.
Mr Reisner argued that the wider construction industry should follow a similar approach if considering introducing payment reforms via a collaborative process with agreed timetables, rather than a potentially damaging short-term switch to completely abolish the practice.
The building services industry has also been pressing for payment reform with bodies such as BESA, the ECA and SEC Group helping MP Peter Aldous to formulate a bill to mandate use of third party deposit schemes for holding retentions.
A second reading of the Construction (Retention Deposit Schemes) Bill, which was introduced to parliament in January, was due to be heard in June. It had been delayed from April.
However, the reading has been pushed back for a second time and is now due to be heard on October 26.
key industry parties have said the additional delays would allow for a growing number of supporters such as the Association of Accounting Technicians and the British Chambers of Commerce to try and build a broader consensus for legislative change in parliament and across the industry.
BESA has claimed that one in four MPs have now expressed some form of support for the proposed changes.
Alexi Ozioro, the organisation’s public affairs and policy manager, said that the decision to push the second hearing back to October reflected a ‘busy legislative timetable’ as efforts continue to finalise a government strategy for Brexit.
He said, “For the bill to have been given a later date shows that the government are not ready to end the conversation around retentions reform. The broad spectrum of MPs supporting the bill is very encouraging, and is set to continue to grow. Reforming the poor payment landscape is not a matter of ideology or party loyalties, its common sense.”