Home News New law proposed to protect cash retentions

The UK construction industry’s financial crisis- with some large contractors in severe financial distress – has prompted a Conservative MP to act. Peter Aldous, MP for Waveney, has laid a Private Member’s Bill to protect the billions of pounds of cash retentions withheld from construction SMEs.  The Bill’s first Reading will be on 9 January 2018.

Cash retentions are ostensibly withheld as security in case a firm fails to return to rectify non-compliant work.  But research commissioned by the Department for Business, Energy & Industrial Strategy (BEIS) has revealed that the monies are primarily withheld to bolster the working capital of the party withholding them.  The practice can lead to widespread abuse with the monies being withheld for three and more years.

The research revealed that over a three-year period £7.8bn worth of retentions was outstanding.  Peter Aldous said that he was concerned about the impact on SMEs:

Mr Aldous said: “I have been aware of retentions as an issue for a while, and with construction being a tough industry and uncertainty surrounding many aspects of the economy, small businesses need as much support as possible. There are a number of specialist engineering firms in Waveney, and what this Bill aims to do is to protect them and their livelihoods as well as 280,000 other construction SME’s nationwide.”

Over the past three years, £700m worth of retention payments to small businesses were lost due to the insolvency of a client, and if a small business suffers from an upstream insolvency of this kind, they are punished twice; firstly with the loss of work, and secondly with the loss of retention money. We therefore need action on this before more millions are lost.

SMEs are the backbone of the UK economy, which is why they need support and protection. This Bill is not about abolishing payment retentions; it is about making sure that people’s money is safe so that businesses can grow and invest in their future.”

Professor Rudi Klein, the CEO of the Specialist Engineering Contractors’ Group, said the Bill had cross-party support: “I’m very grateful to Peter Aldous for initiating this.  All that is required is mutuality of security.  If cash retentions are required as a form of security, there must also be security for the cash as exists in many other countries around the world.”

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