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Fears over retentions bill simply do not make sense

Rudi Klein

After almost 30 years of SEC Group campaigning against retention abuse, we are now closer than ever before to tackling this problem.

The Construction (Retentions Deposit Schemes) Bill – known as the Aldous Bill – awaits its second reading this Friday. Firms across the industry have been busy writing to MPs to ask them to support the proposals.

It is therefore surprising that certain parts of the industry fear the bill will legitimise cash retentions. It seems those concerned would prefer to wait for the possibility of legislation emerging over the next few years to ban retentions (presumably cash retentions).

Tackling the fears

Let me address this concern. Cash retentions are currently perfectly legitimate; they have been for 180 years. Those sitting on the Joint Contracts Tribunal legitimise them every time they publish a new standard form or issue new JCT editions.

So to suggest the Aldous Bill legitimises a practice which is already legitimate doesn’t make sense.

Let’s be clear about what the Aldous Bill proposes. Deduction of cash retentions would be illegal unless ringfenced in a scheme; this recognises the legal position. Cash retentions belong to the party from whom they have been deducted.

“The use of cash retentions will decline as it is discovered that they cannot be used to bolster working capital”

The bill envisages that the secretary of state will introduce regulations to authorise retention schemes. For those unwilling to perpetuate cash retentions, it is quite possible that a scheme could offer an option that does not require the cash to be physically deposited. Instead, a scheme could offer an insurance-backed guarantee rather than taking cash deposits.

Landlord example

Tenancy deposit schemes – a similar model to what is proposed in the Aldous Bill – provide the landlord with the option of taking out insurance cover instead of placing the tenant’s deposit with the scheme; the cover will ensure that the deposit can be paid back.

This flexibility should address the concerns of those arguing against the perpetuation of cash retentions. In any event, the use of cash retentions will decline as it is discovered that they cannot be used to bolster working capital or invest on the overnight money markets.

Moreover, the bill addresses the concerns of the vast majority of industry firms regarding the security of their retention monies and the lengthy delays in getting them released.

Rudi Klein is a barrister and CEO of SEC Group

Readers' comments (2)

  • Surely the opposition is based upon the impact on the Tier 1's balance sheet/working capital? Currently, a Tier 1 has to pay retention to their client but benefits from holding retention on its sub-contractors, which is simply part of its working capital. Under the Aldous proposal, the still have to pay the retention (albeit into the deposit scheme) but lose the benefit of holding the subbie's retention, so net negative impact on some already stressed balance sheets. Whilst I appreciate the legal position, in practice the tier 1's will come up with many creative excuses to delay repaying the retention.

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  • Mr Klein seems ignorant of the fact that there are sub-contractors that currently do not accept cash retention, and do so without any need to pay for an insurance-backed guarantee. It seems rather arrogant of him to say the fears do not make sense when he fails to address them.

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