Time To Tackle Scourge Of Retentions
Proposed new legislation could provide a long-awaited boost to the finances of thousands of SMEs working in construction sectors. Peter Aldous, MP for the Suffolk constituency of Waveney, has introduced a Private Member’s Bill in an effort to amend the 1996 Construction Act in order to ensure all retention payments are held in a third party trust scheme.
This approach to protecting SMEs in the construction supply chain from the threat of insolvency and payment uncertainty has powerful industry backing, having been developed with the Building Engineering Services Association and electrotechnical and engineering services body ECA.
And it would certainly be a welcome first step to reforming appalling industry payment practices that continue to dog sub-contractors.
Building services specialist contractors alone are estimated to be providing more than £2 billion annually by way of retentions. Imagine the investment that could be made into training and cutting-edge technology if this desperately needed cash was ploughed back into the sector.
Launching his Bill, Mr Aldous pointed out that £700 million worth of retention payments to small businesses were lost due to the insolvency of a client over the past three years. He added: “If a small business suffers from an upstream insolvency of this kind, they are punished twice: Firstly with the loss of work, and secondly with the loss of retention money. We therefore need action on this before more millions are lost.”
Retentions are a scourge on our industry; they amount to large companies holding smaller businesses to ransom by effectively using them as banks. In other words, some Tier One contractors are using retentions to boost their own profits at others’ expense.
Ultimately, contracts are driven by two things – cost and legislation. One of these has to change for clients to jump on board. Current legislation is weak either because it is not being implemented or it is poorly designed.
Reforming payment practices would improve collaboration in the supply chain, leading to savings and greater efficiencies.
After all, if you employ a competent company, you employ them because you are confident they will do the work you have asked them to do. In these circumstances larger companies need to be asking themselves: why should I need to make a retention?