I was recently speaking to a civil engineering contractor in the North-west, who has a business with a £5m turnover constructing water and sewerage infrastructure.
Over the recession, he has lost a total of £230,000 worth of cash retentions following insolvencies up the supply chain. This money did not belong to the creditors of the insolvent companies – it belongs in law to the contractor – and it was deducted from the contractor’s payment entitlement.
Retentions are handed over on the basis that they will be released subject to the other party’s rights of recourse to the monies. These usually arise in the event that the party carrying out the work has failed to return to rectify defects. In these circumstances, the law implies a trust arrangement since the party holding the monies does not own them absolutely.
That party can be requested to place the monies in a separate bank account, ring-fenced by trust, which means that in the event of the insolvency of the paying party the monies are protected.
If you have a large retention pot at risk, insist that this is done. If it isn’t, seek a mandatory injunction from the court to force compliance. Alternatively, get a quick decision from an adjudicator that this has to be done.
Other countries already have legislation requiring that retentions are placed in trust in a separate account, and a similar law is currently going through the New Zealand parliament. Last month, late payment campaigner Debbie Abrahams MP laid an amendment to the Small Business, Enterprise and Employment Bill that retentions be put in trust. The government has offered to talk to the opposition about the issue.
So let’s keep up the pressure. As you should be aware of by now, H&V News is championing the issue and has started an online petition to force a debate in Parliament on the subject – details of how to sign it are below.
We need 100,000 signatures by 30 March to ensure this subject is addressed. Please sign the petition, and then encourage your workers, employees, colleagues and friends to do so as well.
Professor Rudi Klein is chief executive of the Specialist Engineering Contractors’ Group