Your browser is no longer supported

For the best possible experience using our website we recommend you upgrade to the newest version of your browser.

Your browser appears to have cookies disabled. For the best experience of Construction News, please enable cookies in your browser.

Welcome to the Construction News site. As we have relaunched, you will have to sign in once now and agree for us to use cookies, so you won't need to log in each time you visit our site.
Learn more

Retentions: It's now or never

Jack Simpson

Write a story on retentions for Construction News and you are guaranteed a wave of comments.

This week has been no different.

The fall of construction giant Carillion has led to reflection on the construction industry’s practices, and retentions have been a main part of these discussions. 

According to estimates, Carillion owed around £800m to its supply chain in retentions when it collapsed. The actual figure is likely to be far higher.

Calls for action on retentions is about as old as the system itself.

Most notably, the late Sir Michael Latham called for action on retentions as part of his seminal Constructing the Team report in 1994.

Sir Michael’s calls, along with many others, have so far fallen on deaf ears.

But recent months have seen a renewed drive for change.

Government-backed research from Pye Tait Consulting in October got the ball rolling when it revealed that the total amount held in industry retentions in England over the course of a given year is £3.2bn-£5.9bn (in 2015 prices).

In December, the campaign took another step forward, when MP Peter Aldous submitted a bill to parliament that would outlaw directly held retentions.

Yesterday’s announcement from Build UK and the Civil Engineering Contractors Association, stating that they wanted to completely abolish cash retentions by 2025, was arguably the most telling move yet.

Having main contractors, oft vilified for their perceived abuse of the system, signing up to end retentions is a significant step. Even if some feel the 2025 target date is too far away.

So if the whole industry wants change, why hasn’t it happened yet?

Part of this is down to the government.

For too long those in Whitehall have taken their eye off the construction ball. It has taken the collapse of a £5bn firm for it to now properly consider, and perhaps eventually change, the systems that hold our industry back.

Action on retentions will also need buy-in from clients.

As Kier boss Haydn Mursell put it today, “It’s worth noting the clients hold retentions on us. So what we’re doing is mirroring the arrangement we’re seeing upstream.”

A solution like the one currently being put forward in the Aldous Bill could help persuade clients to get onboard.

The Aldous Bill suggests not a complete abolition of retention, but the creation of a retention deposit scheme.

Mirroring the tenancy deposit scheme used by landlords and tenants, the bodies behind it say it is a win/win for clients, contractors and subcontractors alike.

A similar system was introduced in Australia after the collapse of construction giants St Hillier and Reed Constructions in 2012, which left hundreds of suppliers out of pocket.

Sound familiar?

The collapse of Carillion was a terrible event for the industry, and the reverberations are going to be felt for years to come.

But wasn’t it Construction Leadership Council chair Andrew Wolstenholme who coined the phrase “Never waste a good crisis”?

Lessons need to be learnt from Carillion, and actions need to be taken.

Changes to the retention system would be a good start.

The solutions are there.

Have your say

You must sign in to make a comment

Please remember that the submission of any material is governed by our Terms and Conditions and by submitting material you confirm your agreement to these Terms and Conditions. Links may be included in your comments but HTML is not permitted.