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BESA/ECA: “hold retentions in trust”

UK: Two of the UK’s leading building sub-contractor groups have told a new government enquiry that retentions should be held in trust.

The building services contractors’ group BESA and the Electrical Contractors Association (ECA) insists  that any cash held as retentions by construction clients and major contractors “must be held in trust at the nearest opportunity”. Taking a lead from practices in Australia, the bodies propose that cash should be held cyclically, in a similar manner to deposits in the private housing rental market.

Looking ahead, the two engineering services trade bodies want to see cash retentions completely phased out, in order to protect suppliers from poor retention practices. They complain that, at present, large businesses retain the cash in their own bank accounts for use in a manner of their choosing.

The comments follow the announcement of an independent review of the current state-of-play on retentions by consultancy Pye Tait, and the announcement of a government consultation on the issue. The government admits that some payment practices prevalent in construction are considered a barrier to investment, productivity improvements and growth.

The groups complain that while cash retention problems have been identified by independent research, and even acknowledged by government, the government has again chosen to consult on the extent of the problem and what to do about it.

“The BESA and the ECA will continue to call on the government to ensure that all cash retentions are held in trust as soon as possible, and to phase them out entirely by the early 2020s,” BESA and the ECA said in a joint statement. “For the good of the economy, and the supply chain, we need a firm commitment to remove the retentions issue.”

BESA estimates that some £10.5bn of the overall construction sector turnover of £220bn is held in retentions and an estimated £7.8bn has been unpaid across the construction sector over the last three years. It also maintains that around £40m of retentions is lost by small firms each year due to upstream insolvencies. To compound the problem, banks do not consider unprotected retentions as security for lending purposes to SMEs.

Related stories:

Firms hit by late public sector payments22 August 2017
UK: Nearly two-thirds of engineering services firms are not being paid within 30 days by public sector bodies – a contravention of government legislation. Read more…

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