Richard Catt provides an overview of the likely information large contractors must publish
about their retentions as part of their crackdown on poor payment practices.
THE UK government has recently unveiled significant reforms aimed at addressing two of the longest standing issues in the construction industry: unfairly withheld retention, and poor payment practices. The changes are headlined as aiming to foster greater transparency, accountability, and a new level of fair business conduct within the sector.
So what are contained in these new regulations?
Government has announced details of the likely information that large contractors will have to publish about their retentions as part of their crackdown on poor payment practices.
Business secretary Kemi Badenoch’s announcement in October signalled a crackdown on poor payment practices, emphasising the need for large contractors to disclose vital details about the retentions they hold.
The comprehensive impact assessment accompanying the reforms outlines key aspects that will be covered under the new rules:
• Contractors’ retention policies:
This includes details on standard terms applied to retentions and the approach taken when releasing retention money to suppliers.
• Average time for retention payments: The regulations will require disclosure of the average number of days taken to make retention payments after practical completion and the end of the contractual-defects-liability period.
• Percentage breakdown of retention payments:
Contractors must report the percentage of retention payments made within different timeframes, providing insights into promptness or delays.
• Non-compliance with agreed payment periods:
The regulations will require disclosure of the percentage of retention payments due that were not paid within the agreed payment period.
• Average value of retentions: Contractors will need to disclose the average value of retentions held per construction contract, presented as a percentage of the contract value.
The overarching goal of these additional requirements is to enhance transparency, invite public scrutiny, and improve information flow to suppliers within the construction supply chain.
In a parallel move, chancellor Jeremy Hunt has declared a renewed commitment to addressing the issue of late payments, particularly in government contracts. The strengthened Whitehall procurement rules will require companies bidding for government contracts over £5 million to demonstrate prompt payment within specified timelines, with non-compliance leading to exclusion from bidding.
This initiative aligns with the broader effort to support small businesses by mitigating the cash flow challenges posed by late payments. From April 2024, a demonstration of payment within an average of 55 days will be mandatory, with further reductions to 45 days the following year and a subsequent 30-day period in future contracts.
While these changes are welcomed by large industry bodies, many suggest caution given members still experience delays in payment and the return of retentions from major main contractors under existing regulations.
Project bank accounts (PBAs) are recommended by some to offer a potential solution to protect subcontractors and ensure timely payments and while government advocates PBAs in public sector contracts, my understanding is that they are rarely used. In addition, the challenge again lies in implementation of a shared aim (of payment for a quality installation) and transparency.
The recent government regulations signal a positive shift toward addressing payment and retention issues in the construction sector. However, the cautious optimism expressed by industry leaders highlights the need for continued vigilance and comprehensive solutions to ensure meaningful change.
The commitment of industry organisations, including Build UK, CLC and of course CFA remains essential in driving these improvements forward.
I think it’s fair to say the Contract Flooring Association welcomes the progress and particularly the contribution of Build UK but shares the cautious optimism of others. I continue to highlight the persistent issue of non-compliance by some major main contractors, and it’s difficult to be overconfident when at the same time these changes are announced housebuilders such as Vistry and Mulberry have randomly demanded 10% reduction in cost from their subcontractors. The latter explaining that unless subcontractors comply, they will be removed from their supply chain.
Added to reality of the long and poor history of payment practices within the wider industry that has led to these latest regulations, this activity doesn’t bode well in terms of a recent example of how the sector ‘thinks’ and treats their supply chain partners.
Which leads me to my final point. For our industry to improve, become more harmonious, take away these debilitating issues that have recently also been highlighted as a major contributor to mental health problems, what we really need is a true shift in culture. One that takes any of the available mechanisms and proactively uses them to pay businesses (and return retention) on time and in full for work satisfactorily completed.
In many senses it is no more complex than that, is it?
The CFA is a leading trade association representing the Flooring Industry. If you would like an application pack or further information on the benefits of membership, please contact the CFA offices on 0115 941 1126, email or apply online at www.cfa.org.uk.
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