Seven in 10 contractors whose contracts include retentions have suffered delays being paid these sums, according to research commissioned by the government.
A report by Pye Tait Consulting for the Department for Business, Energy and Industrial Strategy found that 71% of relevant firms surveyed had experienced delays receiving retention money between February 2013 and April 2016.
The study was published as the government launched a consultation on the practice of withholding retentions on construction projects. Retentions are defined in the report as a sum held by an immediate client to be paid to a contractor upon certain milestones of a project being reached.
About three-quarters of more than 500 contractors surveyed had experience of retentions over the 39 months to the end of April 2016. Meanwhile, of more than 400 clients surveyed, 85% had used retentions over a similar timescale.
“Average delays [in payment] at each tier of the supply chain are several months,” said the report. “The extent of this average delay is significantly longer for tier two and three contractors compared to tier one contractors.”
Specialists body the SEC Group said as much as £7.8bn of retention money may have gone unpaid in the last three years.
“We will be pressing upon the government that this issue of protecting cash retentions should now be an urgent priority given the current financial instability in the industry,” said the body.
Business minister Lord Prior of Brampton said the government understood the importance of prompt payment.
“Despite examples of positive changes, there is some evidence that there is still scope for improvement in relation to payment practices in the construction sector,” he added. “Concerns have been expressed by parts of the industry about unjustified late and non-payment of retention payments and the impact on small businesses.”
The consultation will run until 19 January 2018.