Retentions, cash and specialist representation

Government must act to protect specialists, among others


THE Secretary of State, on recommendation from the House of Lords while reviewing the Enterprise Act, has commissioned a review into retention practices in the UK construction.

His isn’t the first review in modern history, seemingly conducted only when the market is on the up. Government previously reviewed the use of retentions in 2002-2003 where, after much consideration, they were able to declare its continued use was wrong - but that there was little they would be doing to correct this.

Recent government schemes such as Crossrail have been a testament to government’s no cash retention policy. However, there’s been little enforcement of the same on some of the smaller more regional works, the schemes more commonly undertaken by the smaller, regional, more cash dependent tier 1 and specialist subcontractors.

So more than 10 years after the most recent review into the Victorian practice of retention, what has changed? The answer: very little. The recent recession has left developers, employers and tier 1 contractors nervous, under-capitalised and with an aspiration for cash.

With London’s largest developers and contractors implementing cash-only retention policies, the retention practice seems to be worsening in the UK market for the specialist contractors.

The ‘official’ purpose of retention is a retained fund to finance defect remedial works by others if the Specialist Contractor fails to return to site and remedy defects. When discussed among project teams, there’s no secret cash retentions are being used to manage cashflow. For a specialist contractor, aside from the utopian ‘reputation as retention’, the best method for providing surety of defect correction is to provide a retention bond.

Widely available on the market at a fraction of the price of financing a cash retention, which may not ever be returned, they fulfill the official requirements of the retention. There’s recently been a more aggressive move by contractors to insist on an ‘on demand’ negotiated contract and through trade union representation.

In 2015, the very vocal national specialist contractors’ council (NSCC), merged with UK contractors’ group (UKCG) to form a united Build UK, one voice for the industry.

When the merger was announced, I was concerned there would be a conflict of interest for the NSCC as it would now be co-representing the same contractors from whom it previously sought fair payment and treatment.

After a year, I can only conclude my initial concerns have been realised. The NSCC website previously contained vast quantities of information and free downloads to assist specialist contractors in its ‘fight for justice’. Now the Build UK website barely provides mission statement against its ‘issues’.

Subconsciously, Build UK is contractor-driven. Even the membership page shows the contractors and the specialists, not only segregated, but the contractors above the specialists. For a merger that promised to unite the two market sectors, I feel the only parties who’ve benefited have been the contractors who have pacified and disarmed the specialist sector.

Of the high-profile contractor members of Build UK are tier 1 contractors who are currently offering extended payment terms, ‘reverse invoice factoring’ and abolishing the use of retention bonds to return to cash.

How is this association to the ‘mutual’ benefit of the specialist contractors?

As Pye Tait commences its consultation with the industry on behalf of the secretary of state, I urge government to take real action this time to protect the specialists, small businesses, big business and to release £3bn of cash back into our great industry for reinvestment in growth, apprenticeships and innovation.

After all, these are most commonly driven by those worst affected by cash retentions.

Jack Davies is independent commercial consultant, Davies Parker Associated