Government moves to ban retentions

UK: The Building Engineering Services Association (BESA) has described the UK government’s decision to ban retentions in construction contracts as a “landmark and long-awaited victory” for specialist contractors.

The announcement follows the government’s late payments consultation, which has proposed prohibiting the withholding of retentions as part of what is being described as the most comprehensive set of payment reforms introduced this century.

Described by the government as the toughest laws on late payments in the G7, the sweeping new powers threaten multi-million pound fines to hold big businesses and persistent offenders to account 

The measures are designed to ensure entrepreneurs and SME owners are paid on time and prevent the abuse of retention payments in construction.

The small business commissioner will be given sweeping new powers to investigate poor payment practices, adjudicate payment disputes, and fine the worst offenders – with fines worth tens of millions for firms that persistently pay late or fail to comply with the new laws. It also proposes to ban the withholding of retention payments.

The measures will tackle a problem estimated to cost the UK economy £11bn every year and ease the cost of living for entrepreneurs and SME owners who are often forced to wait months – or even years – to receive money they have already earned and having to chase endlessly to receive it. 

The changes will include a new 60-day cap on payment terms on all large firms when paying smaller suppliers. New mandatory interest on late payments will also be introduced, with a requirement for all commercial contracts to include statutory interest set at 8% above the Bank of England base rate.   

For example, if a small business is owed £10,000 by one of its customers and is paid 60 days later than the agreed payment date, they will be owed £10,293.15 including mandatory interest (£10,000 plus £193.15 interest plus £100 compensation).

BESA, which has been lobbying for reform on retentions and late payment practices for many years, claims an active role in shaping the consultation.  “This is a landmark moment for our industry and a hugely significant step forward for BESA members and the wider building services engineering sector,” said BESA chief executive David Frise. “This decision has the potential to transform cashflow, improve business resilience, and create a fairer, more sustainable supply chain.

The government will consult further on how the ban will be implemented, including transition periods and ensuring a clear and robust definition of retentions to prevent their reintroduction in other forms. Legislation is expected to follow when parliamentary time allows, although implementation is likely to take up to two years.