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Carillion fallout: Next on the agenda? Retentions

Tom Fitzpatrick

The idea that retentions be held in deposit, as proposed by parts of the industry and Peter Aldous MP through the Aldous Bill, is a worthy idea that demands consideration.

There are too many examples in this industry of late payment and delayed retentions forcing good businesses under through no fault of their own. It’s justified that if you’re paying someone to do a job there should be some recourse for work that’s not carried out properly.

The ramifications of sub-standard or poorly managed work are too great (as events of the last 12 months have taught us). But the system as it is remains open to abuse. Subcontractors are fed up of being told if they take a financial hit on this job, they’ll win work on another job.

They’re sick of retentions being held for months if not years over the defects liability sign-off due to spurious claims. The problem is that the system is being abused on a regular basis. Now, we have Carillion and the many ‘unsecured creditors’ who will fall and it’s finally brought the situation to a head.

The Aldous Bill’s supporters presented a petition to Number 10 this week. Its signatories do not include the likes of Build UK or CECA. Build UK has already said it is committed to benchmarking contractor pay performance and, together with CECA and the Construction Products Association, wants to see a phasing out of retentions by 2025.

The fact that Build UK membership bodies including the ECA and BESA are among those lobbying for the Aldous Bill shows that there is still a long way to go to unify the industry on this, but all sides are publicly recognising the need to change, which is welcome.

The government is now regularly meeting with some of these bodies to try to prevent another collapse like Carillion while attempting to limit the fallout that has claimed Vaughan Engineering and will force others under before the year is out.

Of course, reform of the industry will lead to greater self-regulation. If contractors could make better margins, have a more consistent pipeline of work and more of a manufacturing approach to building, it could lead to an end to the abuse of the retentions system. Political support is crucial and in that respect the Aldous Bill is winning the race for reform due to MPs of all colours embracing its principles.

But with Build UK now boasting clients among its members, you would hope the message would hit home with the developers, who also need to recognise their role. All sides realise the current retentions system can’t continue.

Now there’s renewed hope that the industry can find a better way.

Readers' comments (3)

  • Just wondering. If the Bill goes through, how will the construction industry be able to phase out / abolish retentions completely, once they are enshrined in law (albeit ring-fenced)? Is this a short-term fix that will backfire on us in the longer term?

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  • its not the fact that big construction firms hold between 1.5-3% retentions from there sub contractors so work out how much the 1billion to 8 billion big players are holding as cash! 15m -120m !! so when they tell the city they have positive cash its ours!!! the true scandal of retentions are the excuses made not to pay any of the retention at all using every trick in the QS manual to not pay!

    phil.

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  • The idea that the Aldous Bill will enshrine retentions is a red herring. Retentions already exist, the Aldous Bill won’t create or mandate them, it will just ensure that the money is properly ring fenced to prevent abuse or protect against upstream
    Insolvency. The Bill will not stop being retentions being banned, it would however hasten the day since there would be no commercial driver to impose and abuse them.

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