Insolvency sparks £700m retention losses

UK: Insolvencies in construction have led to “shocking” cash retention losses of £700m over the last three years, the Specialist Engineering Contractors’ (SEC) Group claims.

The figures, drawn from research carried out by consultants Pye Tait for the Department of Business, Energy & Industrial Strategy (BEIS), are described by the SEC Group as “shocking” and far in excess of its own estimates.

“The bulk of these monies will have been lost by SMEs. They legally belong to the firms from whom the monies were withheld; consent to the withholding of the monies did not extend to their being used to pay off the insolvent party’s creditors,” said  SEC Group CEO Rudi Klein. “This represents a scandalous and continuing drain on the scarce resources of SMEs in the construction industry,” he added.

SEC Group – which represents the largest sector in the construction industry (by value) – has been campaigning for all cash retentions to be deposited with independently run retention deposit schemes.

“Given the dire finances of some of the UK’s largest construction companies it is even more urgent that Parliamentary time is secured for legislation to protect retention monies.” said Rudi Klein.

The report by consultants Pye Tait is part of a government review of the practice of retentions, notably in relation to the costs, benefits and impacts for the construction sector and construction sector clients.

While the total number of insolvencies is high it is on a par with the average for the manufacturing industry.

However, evidence suggests that retention monies being lost due to contractor insolvency affects a large proportion of contractors who use retentions. Whilst the evidence indicates that the number of contracts affected is small, the value lost could still be significant.

The survey, Retention in the Construction Industry, also revealed that the majority of those holding retentions do so in a main bank account, so providing no protection from upstream insolvencies.