Addressing the National Federation of Builders (NFB) annual conference, Peter Aldous MP said abuse of retentions has a “negative knock on domino impact on which cascades right through the construction industry”.
Speaking at the National Federation of Builders (NFB) annual conference, Clicks and Mortar: Making construction digital, Peter Aldous MP said the issue of retentions had “blighted and held back the construction industry for many years,” causing “personal anguish and stress to many business owners.”
Retentions are ostensibly held as security in case a firm fails to rectify defects, however in practice, they are often withheld to bolster the working capital of the party withholding them, Aldous explained.
“For many small firms, the retention is their profit margin,” he continued.
The MP for Waveney quoted government figures that showed that almost £800 billion of cash retentions has remained underpaid over the past 3 years, mostly provided by SMEs.
Aldous, a former chartered surveyor, said amending the system would transform the prospects of SMEs that make up 99% of the firms in the UK construction industry.
“The longer the retention is held, the greater the risk of insolvency and the retention money being lost,” he said.
Abuse of retentions has a “negative, knock-on domino impact which cascades right through the construction industry,” he said.
The Suffolk MP has sponsored the Construction (Retention Deposit Schemes) Bill. This Private Members’ Bill proposes putting payments into a retentions deposit scheme, operating in a similar way to the existing scheme for shorthold tenancies.
Under his proposed Bill, cash retentions can still be deducted as security but in turn, they must be secured by depositing in the scheme. Failure to do so would mean any contractual clause enabling the deduction of cash retentions would be invalid.
He stated that the tenancy deposit scheme is self-funding, through interest earned on deposits. Any profit made is transferred to a charity that provides training.
He enthused that such a scheme would be a “win-win” for the construction industry, as it would be a source of much needed funds for training.
Aldous said this would increase the velocity of cash in the system and banks will be able to lend to firms on the back of such security the system would bring.
The Bill was introduced to parliament a week before Carillion collapsed. Aldous said this dramatic incident “reinforced” the need for action to address the “long outstanding” issue of retentions.
The NFB has called the Aldous Bill an “achievable, practical solution.”
Aldous warned that the UK was now “very much out of step with what is happening elsewhere.”
He referred to schemes in both Canada and in the US, where charges can be placed on the building or structure by a firm that hasn’t received its due payment.
He also cited both Australia and New Zealand, where they have legislated for schemes to ringfence the monies.
250 MPs from across the political spectrum have already indicated support for the Bill, he said.
In order to further his proposals, Aldous cited four things he thought should now happen.
Firstly, he described the need to gather more information about how a retentions deposit scheme would work, how much it would cost to set up and how it would be run and for what cost.
Secondly, he said there was a need to address the criticisms being made that a retentions deposit scheme would be unnecessarily bureaucratic for the small contractors as well as examination as to whether there are any unintended consequences of a retentions deposit scheme.
Finally, an analysis of the tenancy deposit scheme in the UK and obtain feedback from Australia and New Zealand into how the retention schemes are working there.
He said he sensed “the battle of retentions will be ultimately won” but that it “should not be a battle we need to be fighting.”
“This is a critical time for the construction industry, with the Brexit train rapidly approaching and with the government looking to build record numbers of new homes.
He warned that his Private Members Bill would have greater chance of passing into legislation if government adopted it and debated it in their allocated parliamentary time.
“The industry needs to be operating on top gear. This requires a partnership approach with industry and government working together,” he concluded.
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