Construction to be rententions-free by 2025? Pigs might fly

Rudi Klein is a barrister and former chief executive of SEC Group

Trade body Build UK boasts it provides leadership to the industry. Some five years ago – egged on by its large tier one contractor members, the Civil Engineering Contractors Association and Construction Products Association – it announced a “roadmap” to zero retentions by 2025. This roadmap was then embraced by government quango the Construction Leadership Council (CLC), as a convenient way of saying ‘we are tackling the issue’ while, in reality, doing nothing at all. The truth is that the vehicle hasn’t left the garage and the destination will not be reached by 2025 – or probably never.

“Reporting the problem is no substitute for actually dealing with it”

In the meantime, SMEs have conservatively lost more than £2.5bn of retention monies due to upstream insolvencies. The practice of retentions remains as virulent as ever. If I happened to be an SME having lost retention monies and was a member of one of Build UK’s trade associations, I would be holding Build UK to account for its abject failure to join with the rest of the industry five years ago in lobbying for legislation to protect retention monies. I wouldn’t bother with CLC because it’s accountable to nobody.

Then, before Christmas, up pops Lord Offord of Garvel, a junior minister in the Department for Business and Trade, to respond to a question from the indefatigable Lord Aberdare on progress towards achieving zero retentions by 2025. Unsurprisingly the noble Lord was stumped for a response but had to say something to avoid admitting there had been no progress. So, reading diligently from his brief , he rattled off all the things being done to address the blight of cash retentions.

He mentioned that the Reporting on Payment Practices and Performance Regulations 2017 were being amended to record the time taken by large companies to release retention monies. All well and good, but reporting the problem is no substitute for actually dealing with it.

He then whipped out the Get it Right Initiative. Apparently, this will establish a quality metric so that those firms demonstrating defect-free performances will not have retentions taken from them. Who will give such guarantee? The Get it Right Initiative has estimated errors are costing the industry £21bn annually with most of the errors occurring preconstruction. It seems that retentions have made little or no impact on reducing errors.

The practice of retentions is baked into a traditional system of procurement and delivery that is preoccupied with risk transfer and driving down price at all levels – all of which is a breeding ground for defects. Offord would be better placed putting his efforts into driving radical reform of the industry’s procurement strategies to enable project teams to work together from the outset in refocusing their efforts on best-for-project outcomes.

This was a key message in Dame Judith Hackitt’s 2018 report on building safety. Dame Judith even argued that payment and retentions abuse was often a cause of defects as such abuse incentivised compromises on quality. Incidentally, Lord Offord seemed unaware of the procurement guidance on building safety published two years ago by the Department for Levelling Up, Housing and Communities. This advised against the use of retentions but, if used, they must be held in trust.

The industry’s responsibility?

Lord Offord pressed on. Ultimately, it was for the industry to sort matters out. But staring him in the face was that the CLC had done zilch in reaching the target of zero retentions by 2025.

Lord Stunell (former building regulations minister in Cameron’s coalition government) put matters into perspective. “My Lords, the minister has just said that the industry needs to come to a consensus. What he is asking for is the greedy lions to sit down with the defenceless lambs and decide what menu is going to be eaten,” he said.

Lord Offord clearly wasn’t briefed on the fact that the industry had delivered a consensus in its response to the government’s consultation on retentions, which closed in January 2018. The overwhelming majority of respondents voted for legislation to ring-fence retentions within a retention-deposit scheme.

Our noble Lord was not to be undone – he had a final flourish. Only £4bn of retentions are withheld each year out of a construction turnover of £430bn. A couple of things about these figures. The government’s 2017 Pye Tait report on retentions indicated that almost £5bn was being withheld annually (probably more now). And almost half of the turnover figure cited by Offord comprises repairs and maintenance, which doesn’t usually attract retentions.

Nonetheless, I would challenge Lord Offord to be as flippant to a small business that has just lost a retention due to upstream insolvency – after all, the monies legally belonged to the business. Given the current high level of insolvencies, retention monies are at greater risk than ever.

Before Christmas, Scotland’s Construction Industry Collective Voice revealed that 73 per cent of respondents to a survey had experienced severe difficulties in securing the release of their retentions.

It’s now clear that this government has set its mind against any measure to improve the security of retentions. The likes of Build UK and their acolytes should now hang their heads in shame. I will be talking to my prospective MPs prior to the election to obtain their support for protecting retention monies. I invite Construction News readers to follow suit.

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