Many may be forgiven for not noticing the latest legislation proposed to clean up industry practices on retentions. Lord Aberdare’s Retentions Abolition Bill was introduced to the House of Lords on 25 October 2021 without much fanfare. As the name suggests, it goes much further than other bills of its kind in recent years and seeks to abolish the practice of taking retentions altogether.
Will this Bill, which goes further than previous proposals in scope, find support? Or will it be seen as an unprecedented interference with parties’ right to freely contract, and a loss of an important protection against non-performance for Employers?
What does the Retentions Abolition Bill say?
The Retentions Abolition Bill, which can be found here is brief but proposes the following:
- Any clause in a construction contract (as defined by the Housing Grants, Construction and Regeneration Act)) which enables a payer to withhold retention monies will be of no effect from 25 January 2025
- Any retentions withheld at that date must be repaid in full within 7 days
There is no provision for how such a regime would work where the party withholding retention has a legitimate basis for withholding sums.
Problems with retention
Issues with retention monies not being released on time, or at all, are not new and have received government attention for some years now.
In October 2017, a consultation was undertaken to review the use of retentions in the construction industry. Among its key findings, published in February 2020, were that small business within supply chains were among those hardest hit by retention non-payments. However, the consultation fell short of making a firm recommendation, concluding:
Our aim is to work with the construction industry and its clients to achieve a consensus within the industry on how to resolve the problems associated with cash retentions. Several policy options are under consideration, a possible retention deposit scheme, and phasing out of retentions completely, and work continues to assess the viability and potential impact of these.
Whilst reform at some level had support from Government, it was a private members bill (the Aldous Bill), which proposed a third party deposit scheme, that received support from many in the industry. That Bill fell victim to delays in Parliament preventing its passage in 2019 and the issue has not been re-introduced since.
Similar solutions have been enacted elsewhere, for instance New South Wales requires that retention money held on projects over $20million must be held in a trust account with an authorised institution. In New Zealand, a bill is currently progressing through Parliament requiring retention monies to be held on trust, backed by fines as a sanction for non-compliance.
The significant impact on business’ cash flow and the issue of parties becoming insolvent, with their supply chain’s retention simply another unsecured debt, would be addressed by a deposit scheme. However, the latest proposal of abolishing retentions altogether, removing a well-established protection for Employers, is likely to be seen as a step too far.
The Retention Abolition Bill is at an early stage and will now progress to its Second Reading. The debate may progress further; however, without obvious Government or industry support for such a drastic change to industry practice, it seems very unlikely to pass. Nonetheless, it may serve to reignite the discussions around retention reform and bring support for a more measured reform.
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