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Majority of SMEs hit with retentions

UK: A majority of engineering services businesses say that a substantial portion of their turnover is currently being held by firms up the supply chain.

According to new survey findings from the Building Engineering Services Association (BESA) and electrical contractors bodies ECA and SELECT, 56% of businesses say that  a substantial portion of their turnover is held in retentions. The survey, which covered the third quarter of 2017, found that 32% of respondents had 3-10% of their turnover held in retentions. A further 22% had 1-2% of turnover tied up in retentions.

Five businesses reported that 11% or more of their turnover was currently being retained by clients and main contractors. One of those five firms said that over 20% of their turnover was being held in retentions.

“Late payment puts companies out of business and drives up stress levels in an industry already dogged by serious mental health problems,” said BESA deputy CEO Bruce Kirton. “It has been a source of frustration and fury in our sector for decades and, despite upwards of 20 government-backed ‘measures’ or voluntary ‘initiatives’, it continues to threaten the very existence of many SMEs.

“The government has launched yet another consultation on this issue, but the evidence is already overwhelming. Legislation that ensures retention monies are protected and used for the purpose for which they are intended is long overdue,” he added.

Describing retentions as “a blight on the construction industry”, SELECT MD Newell McGuiness added: “Retention sums are often withheld for longer than necessary and are often not repaid in full if at all. It is vital that changes are made to protect businesses from this archaic practice.”

The three sector trade bodies have advocated that cash held in retentions by clients and main contractors should be held in trust, at the earliest opportunity. This is mainly to help protect contractors from the serious risk of upstream insolvency. This approach is already successfully operated in Australia, for example.

Despite the retentions findings, 81% said their turnover had increased or stayed the same during Q3, compared to the previous quarter.

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