BEIS consultation now underway as Pye Tait research finds late and non-payment of retention funds significantly impacting contractor operations
The Specialist Engineering Contractors’ (SEC) Group has expressed concern over new research concluding that £700m in construction cash retentions has been lost over a three-year period due to insolvencies.
The findings, compiled by consultants Pye Tait for the Department of Business, Energy & Industrial Strategy (BEIS), are based on 2016 prices.
SEC argues that the new figures add weight to its calls for revised legislation on how funds are retained from payments owed to contractors to ensure they return to correct work deemed non-compliant.
The organisation has argued that cash retentions, “in practice”, are more often used to bolster working capital for the other party in an arrangement.
SEC Group CEO Rudi Klein argued that the bulk of money was thought to have been lost over the three-year period by small and medium-sized enterprises (SMEs).
“The [money] legally belongs to the firms from whom the monies were withheld; consent to the withholding of the monies did not extend to their being used to pay off the insolvent party’s creditors,” he said. “This represents a scandalous and continuing drain on the scarce resources of SMEs in the construction industry.”
Mr Klein said the SEC Group would continue to campaign for cash retentions for construction work to be deposited with independently run schemes.
“Given the dire finances of some of the UK’s largest construction companies it is even more urgent that parliamentary time is secured for legislation to protect retention monies,” he said.
The government is presently running a consultation on retention payments to look at their wider impact on the construction industry.
“There is evidence that some payment practices prevalent in the construction industry are a barrier to investment, productivity improvements and growth,” said BEIS in announcing the consultation. “Cash retention can be one such practice. Following concerns expressed by parts of the industry, the government agreed to undertake a review of retention payments.”
BEIS also noted that qualitive evidence undertaken by Pye Tait had identified that “late and non-payment of retention monies” was a significant issue for contractors.
BEIS is accepting feedback on the consultation until January 19. As part of the process it is seeking evidence from any parties that have experience with commercial construction contracts, as well as adjudicators, arbitrators and lawyers.