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Retentions: We need dialogue, not division

Lucy Alderson

The issue of retentions has been festering for years – 200 to be exact.

They have become so ingrained in how the industry operates that the challenge of eradicating retentions is akin to cleaning black mould from a bathroom wall.

In fact, three attempts have been made to abolish them to no avail.

Sir Michael Latham’s Constructing the Team report, published in 1994, recommended scrapping retentions in favour of trust accounts so that clients / larger construction firms would no longer wield control over any withheld monies.

A trade and industry select committee report followed in 2003, and a business and enterprise select committee report after that. Both called for retentions to be abolished on public sector contracts. But again, nothing happened.

Now, following the revelations over how Carillion abused the retentions system to shore up its cashflow, there appears to be a real chance to tackle the issue and potentially provide better financial security for construction firms – particularly further down the supply chain.

In January, Conservative MP Peter Aldous tabled a bill that would make it unlawful for contractors and clients to directly hold retention payments. Instead, Mr Aldous proposed retentions be ringfenced within a government-approved protection scheme.

However, divisions have emerged between trade associations over the bill. While more than 60 industry bodies have come out in support, Build UK and CECA have rejected the ringfencing proposal in favour of calling for retentions to be abolished completely.

Nearly two months later, the heads of both SEC Group and the Federation of Master Builders have told CN that no talks have taken place between trade bodies that support the bill and those who oppose it.

The divisions over the Aldous Bill reveal a wider systemic problem within construction. Specifically, how does such a factionalised industry, divided by conflicting interests throughout its different tiers, find common ground on issues such as this?

It is crucial that those calling for the total abolition of retentions outline exactly how this can be achieved for the whole supply chain.

Reaching this consensus is crucial if construction is to show government what needs to change.

After all, it’s becoming increasingly obvious that the way the industry currently operates is unsustainable. Financial data suggests as much, with last year’s CN100 revealing that the average pre-tax margin among the 10 largest contractors was -0.5 per cent.

Given figures such as these, practices clearly need to change. Trade bodies must now get back round the table to agree how we move forward.

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