BEIS Committee demands late payment and retentions policy overhaul

Parliament’s Business, Energy and Industrial Strategy (BEIS) Committee has urged the government to bring forward proposals to introduce mandatory project accounts with a mechanism to independently release cash retentions owed to contractors.

A new report from the committee into small businesses and productivity was critical of existing efforts to combat both late payments and the abuse of existing retentions systems, particularly in light of the collapse of Carillion that has seen building services specialists losing large amounts of money.

Addressing the issues of retentions and late payments have been the focus of an ongoing campaign for a range of industry bodies such as BESA, the ECA and the Specialist Engineering Contractors’ (SEC) Group that have been pushing for regulatory reform. FETA has also been closely involved in this work.  The same organisations have also supported MP Peter Aldous in introducing proposed regulation to parliament back in January that seeks to make the use of third part deposit schemes for holding retentions as a legal necessity.

It is in this environment that the BEIS Committee’s report looked at concerns around payment practices in sectors such as construction and found that the introduction of independently managed project accounts for holding retentions would be a significant step to prevent future abuse.

However, current inaction within government on committing to such a proposal was a major source of concern in the findings.

The committee said, “The government is currently sitting on a review of this issue and we found the minister’s stance that a lack of consensus was holding up progress disappointing.”

“We recommend that the government should bring forward proposals as soon as possible to introduce compulsory project accounts so that retention money can be held independently and its release subject to fair and timely oversight.”

The report noted that the principle of withholding retentions was necessary to ensure contractual responsibilities were being fulfilled in construction projects. However, the level of abuse of the system was a major concern, specifically from big companies that were increasingly building the practice of withholding retentions payments for as long as possible for financial gain into their business models.

The report said the significant damage to the supply chain from delayed and withheld retentions that were owed to contractors was highlighted even further by the liquidation of Carillion in January.

18-12-2018