In January 2018, Peter Aldous MP presented a Bill to parliament concerning the practice of holding retention monies in the construction industry. 

There has been a significant amount of commentary over the years regarding retentions, particularly by sub-contractors who often have to write-off the recovery of retention which can significantly hit margins.

This is what Peter said:

“I will now outline what the problem is. Retentions are deductions—usually 5%, but sometimes 10%—from moneys due to a construction business. Ostensibly, they are held as security in case a firm fails to return to rectify defects. However, in practice, they are often withheld to bolster the working capital of the group withholding them. Under standard industry contracts, they should be returned within 12 months of the handover of the works in question, but there are regular delays of upwards of three years, and in one case 12 years. According to Government figures, almost £8 billion of cash retentions has remained unpaid over the last three years. Most of that cash has been provided by SMEs. No other industry puts so much cash at risk and places such a burden on small businesses.”

And here is his proposed solution:

“the only solution is legislation that secures moneys so that they will be available to be returned, subject to the other party having right of recourse to the moneys. A solution would be along the lines of the statutory requirement in section 215 of the Housing Act 2004 under which deposits taken from shorthold tenancies must be placed in a Government-approved scheme. A similar scheme would work for retentions. Ring-fencing the moneys in such a way would mean that they would be secure and available to be released on time, rather than subject to the current wait of two or more years. That would help to increase the velocity of cash in the system, and if moneys were secured in this way, banks would be able to lend to firms on the back of such security.”

The Second Reading of the Bill takes place on 15 June 2018.