In light of the lessons learned in the collapse of Carillion at the start of this year, the construction industry’s existing retentions system has been under intense scrutiny.
If you’re in the construction industry, you will know all about retentions. Technically, they are a percentage of each instalment due to a contractor/subcontractor that is withheld until the end of the job, to give security that they will return to put right any defects. But in reality, they are a major source of contention, being seen as yet another way of major contractors abusing their financial position and simply refusing to pay them back – just one of the issues for which Carillion has been lambasted.
The second reading of the Construction (Retention Deposit Schemes) Bill, took place on 15th June and called for cash retentions to be held in trust accounts in order to protect the supply chain, has received the support of major trade bodies including the Federation of Master Builders and the Federation of Small Businesses. More than 70 trade bodies have come together so far in support of the Bill following the collapse of Carillion, forming the biggest industry coalition ever on the topic of late and unfair payment.
Affecting supply chains from various sectors, including electrical, plumbing, heating, housebuilding, roofing, interiors, scaffolding and demolition, the matter is still as pressing as ever.
If the Bill is passed it will see the Housing Grants, Construction and Regeneration Act 1996 amended, meaning any clause in a construction contract which allows deduction of cash retentions will become ineffective if, upon withholding the retention, the money is not placed into a retention deposit scheme.
The Bill, which was first introduced to the House of Commons on 9th January 2018 by Peter Aldous MP as a Private Member’s Bill, proposes a “quick inexpensive adjudication or mediation process” to help resolve any potential disputes.
This is not the first time change to retentions has been proposed, but with the support of more than 120 MPs currently, we could expect to see a much-wanted change and significant reform in the construction industry in the near future.
In addition, these changes could apply the deposit scheme to any contract which has a similar effect as a construction contract in the future. It may also push other industries to pass similar legislation that cracks down on late payments, seeing as this is an issue not just limited to construction industry.
In the meantime, if you find yourself in a retention dispute, the best thing to do is to take specialist legal advice.
If you’re interested in any of the topics raised in this article, or for more information regarding construction law and how to handle any challenges you maybe facing relating to retentions in construction contracts, please call to speak to one of the Fraser Brown team on 0115 9888 776.