Carillion chaos shows true price of retentions

The collapse of construction giant Carillion has shown the painful reality of retentions. As supply chain losses keep rising, it’s clear we need to take a wrecking ball to the existing rules – so Professor Rudi Klein shows how to pester your MP to ensure your payments are protected

The Carillion collapse vividly illustrates the lack of payment security in our industry and the devastating impact on small firms up and down the country.

Some of the losses we’ve all read about could have been avoided if measures had been in place to provide security of payment to Carillion’s supply chains.

If such payments had been routed through a project bank account (PBA), rather than Carillion’s pockets, firms would have received their monies. Moreover, there would have been less disruption to the progress of works on public sector projects.

As it is, millions of pounds of retention monies have been lost; monies withheld – ostensibly as security in case of defects – to bolster Carillion’s working capital.

There are many in the construction industry who have been saying that Carillion is a game-changer and that we cannot go on as we are.

Carillion had a reputation in the industry as a commercial bully and extortionist. It was taking retentions from its supply chains when it wasn’t required by some of its clients to provide retentions.

For example, on contracts with the Defence Infrastructure Organisation (DIO), Carillion took retentions, even though the DIO didn’t ask them to.

The result is that Carillion had millions of pounds worth of retentions, withheld from its supply chain going back years. These monies are now lost forever.

It’s clear that change is needed. But luckily, at the same as the Carillion chaos, the first reading of the Construction (Retention Deposit Schemes) Bill took place in the House of Commons.

This Private Member’s Bill was the result of some intense lobbying by SELECT and other trade bodies under the collective umbrella of the Specialist Engineering Contractors’ (SEC) Group.

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“This restrictive and grossly unfair practice acts as a brake on activity in the sector. If we remove it, we can unleash investment in jobs, apprenticeships and technical innovation.”

The Bill – which has been drafted by SEC Group – will place an obligation on any party withholding retention monies to deposit them in a ring-fenced account.

In previous CABLEtalk articles, we have explained that such an account would resemble the statutory tenancy deposit schemes; if a tenant is required to provide a deposit it must be placed in a retention deposit scheme approved by the Scottish Government.

In the event the retention is not deposited in such a scheme, any clause permitting the withholding of cash retentions would be invalid – that is, it would be illegal to deduct cash retentions.

The Second Reading of the Bill is on 27 April 2018. To help it progress through Parliament, it requires that the UK Government either supports it or, at the very least, provides sufficient parliamentary time for it to be debated.

SELECT Members and firms are therefore invited to pester their Westminster MPs with the email provided with this article. Just cut and paste it and send it to your local MP by finding their email address at bit.ly/MP_list

So let’s get those emails flying – and work together even more to strengthen the fight to protect cash retentions.

Copy and send this text as an email:

Dear [name of MP]

CONSTRUCTION (RETENTION DEPOSIT SCHEMES) BILL 2018

You will, no doubt, be aware of the massive losses incurred by small firms in the construction industry in the wake of the Carillion collapse. The losses will include millions of pounds worth of retention monies. These are monies which are withheld from due payments ostensibly as security in case a firm fails to return to rectify non-complying work. In practice they are withheld to bolster the working capital of companies such as Carillion. Retentions held by Carillion have been owing for two, three and more years.

I would be grateful, therefore, if you wouldn’t mind writing to Greg Clark, Secretary of State to the Department of Business, Energy and Industrial Strategy. He should now be asked to support the Aldous Bill. The Construction (Retention Deposit Schemes) Bill requires that cash retentions are protected in a ring-fence scheme. If such legislation had been in force two or three years earlier the millions of pounds worth of retentions lost in the wake of the Carillion collapse would have been protected.

Regards,

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