It’s a jungle out there
Professor Rudi Klein urges businesses to be careful of what could be lurking in the contractual undergrowth when it comes to retentions
For this issue, I was stung into action when a SELECT Member brought to my attention the following appalling retention clause:
‘The sub-contractor acknowledges that the full legal and beneficial ownership in the retention shall remained vested in the contractor and the sub-contractor shall have no interest therein.’
Alarm bells started ringing and I immediately saw red, but why? Well, think about it. Where does your retention come from? It’s taken, of course, from progress payments acknowledged as DUE to you.
So, this dreadful clause – which was an amendment to the sub-contract conditions published by the Scottish Building Contract Committee (SBCC) – seeks to deny that the money is yours from the outset. This is contractual THEFT!
“Think about it. Where does your retention come from? It’s taken, of course, from progress payments acknowledged as DUE to you”
The upshot is this: If your paying party goes into insolvency, you have lost your rights to retention, assuming that there are any monies left in the insolvent’s estate to repay outstanding retentions.
But the clause goes much further, and this is where the theft bit comes in. You have, in effect, forfeited 5% of your due payments which, quite possibly, represents your margin, or a major part of your margin.
So please, don’t EVER sign up to such a clause. On the contrary, demand to know how the other party intends to keep your monies safe.
SBCC Contract Particulars
The Contract Particulars in the SBCC sub-contract documentation need to be read carefully. The standard retention percentage is stated to be 3% but an alternative percentage can be inserted, usually 5%, however watch out for a greater figure.
There is a stated minimum retention amount of £250, unless a greater amount is stated, plus a retention bond option which is often struck out.
Retention release in the SBCC’s sub-contract documentation is controversial, with the Contract Particulars requiring a retention release date to be specified.
If this is not specified, it is the day after expiry of a period – the rectification period – from the date for completion of the main contract works, or the last section of them, plus a further six months. The date for completion of the main contract works should be stated. The main contract rectification period is normally 12 months.
The controversy arises because the length of time for sub-contract retention release can be particularly onerous if your sub-contract completion is well ahead of main contract completion. Moreover what happens – as will often be the case – when main contract completion is delayed beyond any stated date for such completion? In such a case, there will not be an adequate mechanism for determining WHEN sub-contract retentions are to be released. Instead, the scheme for construction contracts kicks in and you can demand release of your outstanding retentions. Release becomes due within seven days of asking for the retentions to be released.
GOT A QUESTION FOR RUDI?
If you have a query you would like Rudi to help with, please email firstname.lastname@example.org
Rudi answers Members’ questions: Page 54
Podcast focuses on what’s important
Rudi Klein and Len Bunton were special guests on the latest MacRoberts podcast, during which they discussed current issues facing the construction sector.
Hosted by Neil Kelly, Head of Construction at MacRoberts, the latest Sector Sessions episode covered:
Payment and project bank accounts
The adjudication process
The Conflict Avoidance Pledge
Quality of works and payment.
This podcast is available on iTunes, Spotify and Google Podcasts by searching for ‘MacRoberts’. You can also listen to it at bit.ly/mcr-pod
New guide offers handy advice
A new guide to managing retentions in construction and how to get money back is now available to download.
Produced by Payapps, the PDF outlines everything you need to know about managing retention, including:
What is retention and what is its purpose?
How does the retention process work?
Current debate around construction retention
Retention construction law and how to mitigate the risk of retention payment delays
Process to follow if payment is not released when expected.
The guide can be downloaded at bit.ly/ret-guide