The Government has published, Retention payments in the construction industry , a consultation on the practice of cash retentions under construction contracts.
The consultation started in 2017 and closed in January 2018. The results, which have taken more than two years to be published, confirmed that payment abuse is a particularly serious issue for the construction industry and on the issue of cash retentions, results in between £3.2 billion and £5.9 billion of supply chain money being with held in the form of cash retentions each year.
More than 50 respondents told the Government that payment abuse is rife throughout the construction supply chain, and cash retention is just one issue amongst a range of payment practices prevalent in the industry; and that the underlying driver of retention abuse is cash flow. ‘Cash is King’ and temptation exists to utilise the funds for other purposes.
Nadhim Zahawi, Minister for Business and Industry, stated in the report: “The fragility of the construction sector’s current business model is demonstrated by the number of firms that become insolvent, with poor or abusive payment practices within the sector often being a contributing factor to these.
“Cash retention is one example of a payment practice vulnerable to both insolvency and abuse. Concerns have been expressed by parts of the industry about unjustified late and non-payment of retentions. These practices can cause problems, particularly for small business owners and we are committed to ensuring that we improve them.”
Cash retentions exposes many specialist contractors to the risk of losses when a contractor holding the retentions goes bust. The Government has no firm proposals to tackle the issue of retentions as part of culture of payment abuse.