Reform of Retention
The use of retentions in the construction industry was thrust into the spotlight at the beginning of this year with the introduction of the Construction (Retention Deposit Schemes) Bill 2017-19 by former chartered surveyor Peter Aldous MP under the Ten Minute Rule. The Bill followed an earlier consultation.
The term ‘retention’ refers to the common practice of deducting a percentage (typically 3%-5%) of the payments certified as due under a construction contract. Half of the amount deducted is typically released to the contractor upon practical completion, with the remaining half released upon certification of making good defects at the end of the rectification period (usually 12 months after practical completion). In theory, retentions provide security to the employer against the risk that the contractor will not complete the works.
The practice of deducting retentions has long been criticised by contractors and sub-contractors. Common complaints are that retentions are released late, offset against spurious defect claims or lost to upstream insolvencies in the supply chain.
Often those most likely to suffer from non-payment of retentions are the SME’s further down the supply chain. The scale of the problem was highlighted by the collapse of Carillion, which was estimated to have held £800 million in retentions at the time it went into liquidation.
The Construction (Retention Deposit Schemes) Bill is aimed at protecting retention deposits withheld under construction contracts through the introduction of amendments to the Housing Grants Construction and Regeneration Act 1996 (the “Construction Act”).
The amendments to section 111 of the Construction Act would mean that any clause in a construction contract that enabled a payer to withhold retention will be of no effect unless:
- the retention is paid into a special deposit scheme;
- the payer notifies the payee of the scheme administrator’s details; and
- the payer notifies the scheme administrator of the payee’s details.
Where retention monies are already being held under a contract that pre-dates the new Act, those monies must be transferred into a retention deposit scheme. Where a payer fails to comply with these obligations, it will obliged to refund the retention in full within seven working days.
At the time of writing, the Construction (Retention Deposit Schemes) Bill is due to receive its second reading on 25 January 2019. The Bill has received strong backing from some sections of the industry. Others claim the Bill does not go far enough and suggest that retentions should be outlawed altogether. Meanwhile, employers may be wary of additional costs and any attempt to fetter their access to the most common form of security in construction projects.
Post-Brexit business visitors and working in France, Germany, Spain and the UK
Immigration specialist Paul McCarthy will be joined by speakers from Karl Waheed Avocats , Noerr and Sagordoy Abogados.
LIDW21: A view from London and India
Watch the discussion on the challenges of the possible rise in disputes in the construction and infrastructure sector in India.
Construction Post Pandemic: 'Great Expectations' or 'Bleak House'?
Watch the discussion on construction post pandemic for the UK and internationally.
Top 7 Data Protection Tips for Employers
Here are our top 7 data protection tips for employers.
There has been an increase in online phising attacks over the past year - but why?
Building Safety and the “Golden Thread”
What you should be doing now
Exclusion clauses in freezing orders
The principles illustrated in Crowther v Crowther and Moutreuil v Andreewitch.
Charles Russell Speechlys advises Avicenna Group on duo of pharmacy group acquisitions
The acquisition takes Avicenna to a total of 135 pharmacy branches.
The Nature and Prevalence of Pro Bono Partner Roles Globally hosted by DLA Piper
A conversation with four Pro Bono Partners
Charles Russell Speechlys advises IFS on acquisition of Axios Systems
Axios Systems PLC is a global provider of cloud-based Enterprise Service Management (ESM) software.
Planning Gateway One to introduce new fire safety requirements for high rise residential buildings
The government is introduce a number of new requirements to the planning system - read what the requirements will mean here.
Mock Conference with Counsel
An authentic insight into common challenges facing developer clients.
Lasting Powers of Attorney: What you need to know and what is new
A five-minute guide for advisers and money managers
Charles Russell Speechlys advises Apollo Aerospace Components on acquisition of NYK Component Solutions
Apollo is an aerospace and defence supplier.
Charles Russell Speechlys have advised Taylor Wimpey UK Limited and Vistry Homes Limited, on the disposal of their interest in the Cambourne Business Park
The £12m land was originally designated as part of an employment zone in the new town, but will now be promoted for 275 residential units.
“Subject to Contract” does not amount to an agreement
What does the recent Aqua Leisure International Limited v Benchmark Leisure Limited mean and what practical tips can be taken?
Christopher Busaileh writes for Building on the issues of including liquidated damages clauses in subcontracts
There are a number of specific issues that need to be considered for a main contractor looking to include LADs clauses in subcontracts.
Charles Russell Speechlys proud to sponsor the ‘Outstanding Achievement’ award at the final Sunday Times Virgin Fast Track 100 awards
The awards celebrated the successes of Britain’s 100 private companies with the fastest-growing sales.
Disputes under more than one contract
Jurisdictional issues to remember if considering adjudication
James Worthington writes for Construction News on the way in which the courts will handle leaseholder claims relating to defective cladding
Defective cladding: how will the courts handle leaseholder claims?