As the second reading of the Retentions Bill draws closer, politicians need to really listen and understand the seriousness of the payment problem across construction
Insolvencies in the construction industry in the UK have soared since the collapse of Carillion. According to figures from the Insolvency Service, the first quarter of 2018 was one of the worst quarters in recent times for construction insolvencies.
During this time, some 780 companies went into insolvency, representing a 20% increase on the same quarter in 2017. And in the 2017/18 financial year, there were a total of 2,764 insolvencies – that’s up 6% on the previous year. The UK Government’s Official Receiver and his ‘special managers’, PWC, are still trying to assess the total liabilities of the Carillion Group. For the group as a whole – which includes Carillion Construction – liabilities are likely to exceed a staggering £15 BILLION.
We may have to wait until next year before we get any firm idea of the sum that was owed to trade creditors and how much of that represented retention monies. But against this background, the balance sheets of our major contractors continue to show increasing amounts of debt.
Payment records revealed
Large companies are now under a statutory duty to report twice yearly on their payment performance, thanks to The Reporting on Payment Practices and Performance Regulations 2017.
These companies are required to publish their standard payment terms and the extent to which they pay late beyond those terms. This information can be accessed via a UK Government website, but our table above right sets out the top 10 worst payers.
However, the figures published by these companies are unlikely to represent the true picture. Indeed, it’s likely to be even worse because most will no doubt claim they’ve paid on time, even though they’ve withheld monies that were otherwise due because of some dispute.
Also, they may claim they’ve paid on time the amount they considered due because the application was either not submitted on time or not accompanied by sufficient supporting documentation.
Challenging lengthy payments
SELECT Member firms should keep SELECT informed of payment abuse – especially where it occurs on installation or maintenance works for public bodies.
Under the Procurement Reform (Scotland) Act 2014, public bodies must ensure that 30-day payments are made right along the supply chain to Tier 3 contractors. This applies where their construction spend is over £5 million per year.
This 30-day payment requirement applies also to retentions; they must be released within 30 days of the due date for release.
The Construction (Retention Deposit Schemes) Bill 2018
It is exactly three years since the SEC Group’s lobbying secured a commitment from the UK Government to review the practice of retentions. It was also a year ago that the Pye Tait report following the review was published.
The consultation on whether cash retentions should be protected closed on 19 January this year. Other than those who advocated no change, the consensus was that the practice of cash retentions had to be reformed.
But to date, the UK Government has been slow to act. Instead, it continues to rely on the fact there isn’t a consensus on the best way to reform the practice; there are some who want to abolish it altogether.
The Retentions Bill – or the ‘Aldous Bill’, named after Peter Aldous MP who introduced it – comes up for its second reading on 26 October. To progress, it requires support from the Government. I’ve said repeatedly in this column that ring-fencing cash retentions will have the effect of ending the system over time; if you can’t use the cash there’s little point in asking for it.
Where to now?
The Aldous Bill is now supported by well over 200 MPs and 80 organisations and the construction industry in Scotland is behind it. So every SELECT Member firm should now contact its Westminster MP to obtain assurance of their support for the Bill. Use the step-by-step guide on the right to keep up the fight!
The second reading of the Construction (Retention Deposit Schemes) Bill 2018 will be on 26 October 2018. Since the Carillion debacle early in the year, insolvencies in the construction industry have soared. In the first quarter of this year there were 780 insolvencies – up 20% over the same period last year. This means that yet more retention monies are being lost. Almost £1m worth of cash retentions per working day is being lost by firms due to insolvencies upstream of the supply chain.
Can you confirm your support, or continuing support, for the Bill? If so, would you mind writing to Greg Clark, the Business Secretary, to ask that the UK Government now publicly declares its support for the Bill.