The Abolition of Cash Retentions
Representatives of the construction industry and supply chain have called on the Government to abolish the practice of retentions in the construction industry.
Representing the supply chain, from clients and contractors, and manufacturers and suppliers, Build UK, the Civil Engineering Contractors Association (CECA), and the Construction Products Association (CPA), have responded to the Government consultation on the Practice of Cash Retention under Construction Contracts.
They say that cash retention – the withholding of a percentage of payment on construction work until it is certified as having been completed free of defects – is problematic for all parties, having a significant impact upon cash flow and working capital throughout the supply chain.
These issues have been brought into stark focus with Carillion going into liquidation. Their insolvency has left an estimated 30,000 creditors, which are predominately small and medium-sized businesses, high and dry, while it is also estimated that the company held £800M of retention payments on entering liquidation.
There is an aim to achieve zero cash retention within the industry by 2025 but it is recognised that alternative solutions must be identified and made available to the industry in order to provide security in the event of defects.
Build UK Chief Executive Suzannah Nichol MBE said: “The collapse of Carillion has reinforced the need for significant change in the construction industry, and we urge Government to take legislative action to abolish cash retention. The industry is ready to support this by implementing a phased approach to zero retention, in partnership with Government.”
Although this approach has been initiated by construction organisations representing large mainly commercial firms, Home Extension Team will watch with interest as to how this proposal may impact on the domestic market.