Engineering trade bodies have unveiled a hard-hitting plan to get rid of cash retentions in the construction industry.
In a submission to the government in the wake of the demise of Carillion, the Building Engineering Services Association (BESA) and the Electrical Contractors Association (ECA) have called for steps to be taken to abolish the practice.
The trade bodies have recommended the introduction of retentions deposit schemes, which would ring-fence retention money, as a means of protecting suppliers. A bill currently going through parliament would make such schemes compulsory.
Carillion’s collapse into liquidation has put the issue of retentions in the spotlight. Following the construction giant’s collapse into liquidation, trade bodies Build UK, the Civil Engineering Contractors Association and the Construction Products Association (CPA) urged the government to abolish retention payments, claiming that the failed contractor held an estimated £800M in retentions when it went bust.
BESA director of legal and commercial Rob Driscoll said: “The government’s Industrial Strategy relies on an engineering services sector which has both the capability and capacity to continue to deliver against UK demand.
“Recent events have shone a spotlight on just how critical prompt and fair payment is to ensure a financially healthy, innovative and productive sector best achieved through a move away from the use of retentions.”
The plan submitted to the government included results of a survey of 137 BESA and ECA members that shows the average retention is 5% of money payable to subcontractors. This exceeds many supply chain profit margins. The survey also shows that 92% of respondents had faced construction retentions in the last three years. Two-thirds of current contracts involved retentions, the survey found.
The Construction Retentions Scheme bill was introduced to the House of Commons in January. It is intended to make retention deposit schemes compulsory. The bill is due to have a second reading in April.
ECA director of business Paul Reeve said: “Prompt and fair payment is essential for industry collaboration, increased productivity and investment. Putting retentions in trust is vital to making early progress with protecting and supporting SMEs.
“Looking forward, it would help the industry not just to survive, but to modernise and deliver on the new sector”.