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House of Lords debate about misuse of cash retentions sees government minister favouring industry-led initiatives over legislation to end industry reliance on such schemes

Calls for primary legislation to end the use of cash retentions for building engineering and construction contracts have been dismissed by government representatives in a House of Lords debate.

Lord Callanan, the parliamentary under-secretary of state for business, energy and corporate responsibility, argued last week that there was a lack of industry agreement on the value of legislating for ending retentions outright, as opposed to relying on industry-led approaches.

The Conservative peer said during a debate on Build UK’s Roadmap to Zero Retentions plan that there was sufficient consensus within the industry to begin taking action on ending the use of retentions for contracts by 2025 without legal enforcement.

He stated, “Some people passionately believe in the need for primary legislation, but obviously there is some opposition as well. We continue to believe that the best way forward is for an approach that all sides can agree on to be taken forward by the Construction Leadership Council.”

Lord Callanan was responding to questions from other peers about concerns from construction specialists about the misuse of cash retentions in their contracts. This has been heightened by wider concerns about poor payment practices following the challenges of the Covid-19 pandemic on the construction sector.

Trade body Build UK has previously responded to the concerns by publishing a ‘Roadmap to Zero Retentions’ plan with the aim to gradually end the use of cash retentions in the construction sector by no later than 2025.  This strategy has since been endorsed by the Construction Leadership Council (CLC) as an plan that can gradually end a reliance on retentions. The CLC argued in 2019 that retentions schemes were responsible for the loss of hundreds of millions of pounds of money that were owed to contractors annually due to issues such as upstream insolvency.

House of Lords debate

Lord Callanan said in the Lords’ debate on 15 December that a vast majority of government departments were no longer using retention clauses in their contracts, while accepting more could be done across government.

 He said, “The main exception to that is the Department for Education, and I continue to urge it to follow the lead of other departments in this regard.”

Labour peer Lord Lennie noted that the government had earlier this year said it was working with the CLC on creating a “sustainable strategy” for replacing retention in the construction sector.

He asked that if no legislation was forthcoming on the issue, then when did the government intend for a formal strategy to be published, if at all?

Lord Callanan responded by not directly addressing if the strategy would be forthcoming. Instead, he noted that ending cash retentions was a complicated issue with a range of different views across the construction sector on how best to do it.

He said, “In considering the abolition of this contractual practice, there would need to be the development of alternative surety products for the whole industry. That could mean the adaption of existing products, such as performance bonds, or the introduction of new products. It may also involve a range of different products.”

The government was therefore committed to continuing to work with the Construction Leadership Council on the issue.

Green Party peer Baroness Jones noted that the practice of retentions was serving to distort understanding of cash flows at all levels of the construction industry and should therefore be abolished.

Lord Callanan said that he agreed that ending retentions use would be a “great result” in the industry, with initiatives already underway to achieve this via a more gradual shift.

He cited the CLC’s ‘Get It Right Initiative’ as one positive example of this work.  A major aim of the initiative is to ensure that firms able to demonstrate a good level of performance and job satisfaction will no longer have retentions levied on them. 

Lord Callanan said of the scheme, “In my view, that is a hopeful development.”

Industry body BESA is among trade bodies that have backed legislation to be introduced that would introduce a new ringfenced retention scheme to ensure all funds are held and managed by an accredited third party in terms of possible disputes or issues.  This has included pressuring devolved administrations such as Scotland or Wales to look at taking a stricter approach on how retentions are used for construction projects.

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