Recently I was talking to a civil engineering contractor in the North-west.
His is a £5m turnover business constructing water and sewerage infrastructure.
Over the period of the recession he has lost a total of £230,000 worth of cash retentions following insolvencies up the supply chain. This money did not belong to the creditors of the insolvent companies – it belongs in law to the contractor. The money was deducted from the contractor’s payment entitlement.
Retentions are handed over on the basis that they will be released subject to the other party’s rights of recourse to the monies. These usually arise in the event that the party carrying out the work has failed to return to rectify defects.
In these circumstances the law implies a trust arrangement since the party holding the monies does not own them absolutely. That party can be requested to place the monies in a separate bank account ring-fenced by trust.
In the event of the insolvency of the paying party the monies are protected. If you have at risk a large retention pot insist that this is done. If it isn’t, seek a mandatory injunction from the court to force compliance. Alternatively get a quick decision from an adjudicator that this has to be done.
Other countries have legislation that requires that retentions be placed in trust in a separate account. Such legislation is currently going through the New Zealand Parliament.
Last month late payment campaigner Debbie Abrahams MP laid an amendment to the Small Business Bill that retentions be put in trust. The government has offered to talk to the opposition about this.
So, let’s keep up the pressure. There is now an e-petition in place calling for a full parliamentary debate on the subject.
Go to http://epetitions.direct.gov.uk/petitions/71753 and sign the petition.
Get your employees to sign it too. We need 100,000 signatures by 30 March 2015 to force such debate.
Rudi Klein is the chief executive of the Specialist Engineering Contractors’ Group