The fight goes on
The discussion about retentions in the House of Commons has been delayed until June. But that gives us more time to put pressure on our MPs and deliver a knockout blow to this unfair practice
By Professor Rudi Klein SEC Group CEO and Barrister
On 23 April this year, the Construction (Retention Deposit Schemes) Bill was published. It’s become known as the Aldous Bill since it was introduced by Conservative MP Peter Aldous at its first Reading in the House of Commons on 9 January.
The Bill has the backing of almost 130 MPs across all parties in the House of Commons. One such supporter is Kilmarnock MP Alan Brown who, as we highlighted in a previous edition of CABLEtalk, attempted to bring in legislation to safeguard retentions over a year ago. This was scuppered when Theresa May called a General Election.
The Bill was due to have its Second Reading on 27 April but this has now been moved to 15 June for two reasons:
It is hoped that there will be more time to discuss it, as Bills introduced by MPs are called Private Members’ Bills and are always debated on Friday afternoons.
Having the extra time will provide more opportunities to pile the pressure on the Government to support it.
What the Bill says
The Bill will add a new section to the payment provisions in the Construction Act. Its key provision is as follows:
“Any clause in a construction contract, entered into after the passing of the Construction (Retention Deposit Schemes) Act 2018, which enables a payer to withhold cash retentions shall be of no effect unless:
a) upon their withholding, the monies are deposited forthwith in a retention deposit scheme…and
b) prior to the first withholding of the monies, the payer has notified:
i) the payee of the scheme administrator’s name and contact details, and the scheme administrator of the payee’s name and contact details.”
This means that any retention deposit schemes will have to be approved by government. However, such schemes may also offer alternatives. The basic version would be a ‘custodial’ scheme where the retention monies would be kept secure until release. This would
be similar to the service provided by tenancy deposit schemes. The other main alternative would be an insurance-backed one. In other words, clients would be offered an insurance option as security instead of cash retention.
The retentions consultation
You may recall that last year the UK Government published a consultation on the practice of retentions. The consultation period closed on 19 January 2018 and the Business Department in London has now analysed the responses.
SELECT, as part of UK SEC Group (and SEC Group Scotland) has urged that we strive for protection of retention monies as soon as possible. We now know that the liabilities of Carillion Construction were over £7 billion and still rising. Almost £750 million could be outstanding retentions which are now lost forever. Therefore, we must register our anger about this loud and clear.
In his excellent talk at the April meeting of the Construction Cross-Party Group in the Scottish Parliament SELECT’s Alan Wilson, speaking on behalf of SEC Group Scotland, said the Carillion debacle has given us no choice but to act now to safeguard the monies.
Statutory safeguarding of retention monies is likely to reduce the demand for cash retentions. If the cash cannot be used to bolster working capital there is little point in asking for it. Moreover, to move now to a statutory ban on cash retentions would stir up considerable opposition. It is known, for example, that Scottish local authorities would not support an outright ban but they would be sympathetic to statutory protection for the monies.
Where to now?
The date to bear in mind is 15 June 2018. Firstly, every SELECT Member firm should send an email to their local Westminster MP as follows:
“Please confirm that you support the Construction (Retention Deposit Schemes) Bill which has its second reading on 15 June 2018.”
Secondly, do you know a large client organisation – public or private body – that would support legislation to ring-fence cash retentions? If so, please pass the name to SELECT using the email above.
We have to continue to be proactive if we are to end this pernicious practice where your monies are always at risk.
Doing nothing is not an option!
“Almost £750m in retentions could be lost, so we must register our anger loud and clear”