Rudi Klein is a barrister. He was formerly chief executive of the Specialist Engineering Contractors’ Group
I have a question. Has anybody seen a diminution in the demands for retention monies? Feedback I receive from firms is a definite NO!
There is a reason for asking. Cast your minds back approximately seven years ago. Build UK – dominated by the large contractors – launched a roadmap for getting rid of retentions by 2025. This trade body seemed to believe it had powers akin to a statutory body to be able to deliver such an outcome. But many, including some of this organisation’s member trade associations, were completely taken in by this populist albeit non-achievable target. The roadmap twaddle was also adopted by a government guango, the so-called Construction Leadership Council (CLC).
“Each year, on average, supply chains are losing over £300m of retentions due to upstream insolvencies”
It proved to be extremely convenient for the construction civil servants in the business department. They didn’t have to lift a finger to do anything, despite the widespread clamour to protect retention monies generated by the Aldous Bill – the Construction (Retention Deposit Schemes) Bill – introduced in 2018. The department was happy to remain on its proverbial backside by claiming there wasn’t an industry consensus on reforming the practice of retention. But a majority of responses to a government consultation in 2018 had supported statutory protection for retentions.
The roadmap was also keenly supported by the large contractors because they knew it was “pie in the sky”. The last thing they wanted was to be deprived of the extra working capital provided by having use of their supply chains’ retentions. Back in 2018/19, they were walking into the business department to make doubly sure that there would be no action on protecting retentions. Any such move, they argued, would end up with another Carillion. The department was more than happy to acquiesce (as an aside, one can only guess that ministers at the time – with the notable exception of Richard, now Lord, Harrington – were not really engaged on this issue).
And then we have a smaller version of the Carillion debacle with the collapse of ISG last year. Almost £200m was lost by the group’s supply chain. My guesstimate is that a conservative £20m worth of retentions was lost, including those owing from previous years. Over the year to the end of January this year, there were 4,031 insolvencies in the industry – an increase of over 25 per cent on the pre-pandemic total of 3,218. Each year, on average, supply chains are losing over £300m of retentions due to upstream insolvencies; annually, almost £6bn of retentions are at risk.
Inaction must end
Why the focus on retentions? Firstly, the money legally belongs to the firms from which they were withheld; they do not consent to the monies being put at risk by absorption into working capital. Secondly, there’s very little a firm can do about securing its retentions, as it witnesses an upstream party gradually sliding into insolvency.
We are now a fair way into 2025. For some time now, a wall of silence has descended over both Build UK and the CLC about progress on their 2025 roadmap to nowhere. Why? It dawned on them “early doors” that the target was wholly unachievable. Now the truth. They had delivered on their objective of stymying any move to ringfence retentions. But their continued opposition to statutory protection is unforgivable. As a result, SMEs have lost over £1.5bn worth of retentions following upstream insolvencies. Both organisations have a lot to answer for.
The present government is talking about fair-payment legislation. The industry cannot continue to allow prolonged inaction over retentions. Other jurisdictions have legislation in place to protect retentions, the latest being Western Australia (retentions to be held in trust). We must now persuade this government to legislate and overcome the reluctance of civil servants in the business department to act. It’s time to start talking to MPs.