The problems with retention - Revision history

Designing Buildings at 07:20, 23 November 2020

2020-11-23T07:20:18Z

← Older revision		Revision as of 07:20, 23 November 2020
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	* Six steps to combat late payment.		* Six steps to combat late payment.

−	[[Category:Theory]] [[Category:Contracts_/_payment]] [[Category:Procurement]]	+	[[Category:DCN_Commentary]] [[Category:DCN_Guidance]] [[Category:Theory]] [[Category:Contracts_/_payment]] [[Category:Procurement]]

Designing Buildings at 16:47, 20 August 2018

2018-08-20T16:47:22Z

Editor: Created page with "Retention is a percentage (often 5%) of the amount certified as due to the contractor on an interim certificate, that is deducted from the amount due and retained by the client. ..."

2018-08-15T16:44:37Z

Created page with "Retention is a percentage (often 5%) of the amount certified as due to the contractor on an interim certificate, that is deducted from the amount due and retained by the client. ..."

New page

Retention is a percentage (often 5%) of the amount certified as due to the contractor on an interim certificate, that is deducted from the amount due and retained by the client. The purpose of retention is to ensure that the contractor properly completes the activities required of them under the contract.

In January 2018, following the collapse of Carillion, several main contractors backed a call to put an end to retention payments. Build UK, the Civil Engineering Contractors Association and the Construction Products Association provided a joint submission to the ongoing government consultation, stating that; 'The industry is fully committed to achieving zero cash retention and we believe that Government must introduce legislation to ensure there is zero cash retention within the industry by no later than 2025.'

The construction supply chain payment charter also proposed abolishing retention by 2025.

What are the problems with retention?

Retentions can be large amounts of money and may cause cash flow problems for parties throughout the supply chain. It has even been suggested that retention clauses do not comply with the Housing Grants, Construction and Regeneration Act (Construction Act), which sets out requirements for the withholding of payments.

Before the amendments were introduced in the 2011 version of the Construction Act, a problem that was particularly prevalent for subcontractors was that the release of the retention monies could be delayed by an act or event that occurred within a different contract, for example, the main contract as opposed to the subcontract. The Act changed this so that the release of retention to subcontractors was incapable of being linked to an occurrence within a main contract that was unrelated. It held that a specific occurrence related to subcontract is what must trigger the non-release of the monies.

Despite this, contractors have, in many instances, tried to exploit loopholes to continue delaying retention payments. This can include the mistaken or intentional lengthening of the time between start of contract and release of the retention monies. What can happen is that contractors hold onto the retention money for so long that a subcontractor decides to write it off as a loss and move on to current work. There have been reports of contractors who have adopted this as their standard operating procedure and consider retention as contributing to their profit margin.

This can be very problematic for subcontractors’ cash flow, especially when a contractor may retain up to around 2.5% of the turnover for a year or more after a project is complete. It can also create administrative problems for subcontractors in terms of having to maintain records of monies still outstanding and chase up payment release over a long period of time.

While there are appropriate legal remedies that are available in this type of circumstance, they may be judged as being too unwieldy for the sums that are sometimes involved.

In addition, the risk of non-payment due to contractor insolvency can also increase with the longer that payment is delayed. Retention monies that are held when a contractor fails often end up going to the creditors instead of the subcontractor, even though the failure is often completely unrelated to the subcontractor.

Even though they usually benefit from improved cash flow, retention can also pose problems for main contractors. For example, when trying to recover retention monies from the client, perhaps in a situation where the client has incorrectly identified something as a defect.

For updates on retention reform, see [[Retention_in_construction_contracts#Reform|here]].

= Find out more =

=== Related articles on Designing Buildings Wiki ===

* Carillion.
* Construction (Retention Deposit Schemes) Bill 2017-19.
* Construction supply chain payment charter.
* Defects liability period.
* Holdback.
* Interim certificate.
* Retainage.
* Retention.
* Retention bond.
* Retention held in trust fund.
* Right to payment.
* Six steps to combat late payment.

[[Category:Theory]] [[Category:Contracts_/_payment]] [[Category:Procurement]]

← Older revision		Revision as of 16:47, 20 August 2018
Line 1:		Line 1:
−	Retention is a percentage (often 5%) of the amount certified as due to the contractor on an interim certificate, that is ~~deducted from the amount due and~~ retained by the client. The purpose of retention is to ensure that the contractor properly completes the activities required of them under the contract.	+	Retention is a percentage (often 5%) of the amount certified as due to the contractor on an interim certificate, that is retained by the client. Half of the amount retained is released on certification of practical completion and the remainder is released upon certification of making good defects.
		+
		+	The purpose of retention is to ensure that the contractor properly completes the activities required of them under the contract.
		+
		+	Retention may als be held by the main contractor on subcontracts, and so on down the supply chain.

	In January 2018, following the collapse of Carillion, several main contractors backed a call to put an end to retention payments. Build UK, the Civil Engineering Contractors Association and the Construction Products Association provided a joint submission to the ongoing government consultation, stating that; 'The industry is fully committed to achieving zero cash retention and we believe that Government must introduce legislation to ensure there is zero cash retention within the industry by no later than 2025.'		In January 2018, following the collapse of Carillion, several main contractors backed a call to put an end to retention payments. Build UK, the Civil Engineering Contractors Association and the Construction Products Association provided a joint submission to the ongoing government consultation, stating that; 'The industry is fully committed to achieving zero cash retention and we believe that Government must introduce legislation to ensure there is zero cash retention within the industry by no later than 2025.'
Line 5:		Line 9:
	The construction supply chain payment charter also proposed abolishing retention by 2025.		The construction supply chain payment charter also proposed abolishing retention by 2025.

−	~~What~~ are the problems with retention?	+	So what are the problems with retention?

	Retentions can be large amounts of money and may cause cash flow problems for parties throughout the supply chain. It has even been suggested that retention clauses do not comply with the Housing Grants, Construction and Regeneration Act (Construction Act), which sets out requirements for the withholding of payments.		Retentions can be large amounts of money and may cause cash flow problems for parties throughout the supply chain. It has even been suggested that retention clauses do not comply with the Housing Grants, Construction and Regeneration Act (Construction Act), which sets out requirements for the withholding of payments.

−	Before the amendments were introduced in the 2011 version of the Construction Act, a problem that was particularly prevalent for subcontractors was that the release of the retention monies could be delayed by an act or event that occurred within a different contract, for example, the main contract as opposed to the subcontract. The Act changed this so that the release of retention to subcontractors ~~was incapable of being~~ linked to an occurrence within a main contract that was unrelated. It held that a specific occurrence related to subcontract is what must trigger the non-release of the monies.	+	Before the amendments were introduced in the 2011 version of the Construction Act, a problem that was particularly prevalent for subcontractors was that the release of the retention monies could be delayed by an act or event that occurred within a different contract, for example, the main contract as opposed to the subcontract. The Act changed this so that the release of retention to subcontractors could not be linked to an occurrence within a main contract that was unrelated. It held that a specific occurrence related to the subcontract is what must trigger the non-release of the monies.

−	Despite this, contractors have~~, in many instances,~~ tried to exploit loopholes to continue delaying retention payments. ~~This can include the mistaken or intentional lengthening of the time between start of contract and release of the retention monies. What can happen is that contractors~~ hold onto the retention money for so long that a subcontractor decides to write it off ~~as a loss~~ and move on to current work. There have been reports of contractors who have adopted this as their standard operating procedure and consider retention as contributing to their profit margin.	+	Despite this, some contractors have tried to exploit loopholes to continue delaying retention payments. Contractors have been known to hold onto the retention money for so long that the subcontractor decides to write it off completely and move on to current work. There have even been reports of contractors who have adopted this as their standard operating procedure and consider retention as contributing to their profit margin.

−	This can be very problematic for subcontractors’ cash flow, especially when a ~~contractor may~~ retain up to around 2.5% of ~~the~~ turnover for a year or more after a project is complete. It can also create administrative problems for subcontractors in terms of having to maintain records of monies still outstanding and ~~chase~~ up payment release over a long period of time.	+	This can be very problematic for subcontractors’ cash flow, especially when a contractors have been reported to retain up to around 2.5% of their turnover for a year or more after a project is complete. It can also create administrative problems for subcontractors in terms of having to maintain records of monies still outstanding and chasing up payment release over a long period of time.

−	While there are appropriate legal remedies ~~that are~~ available ~~in this type of circumstance~~, they may be judged as being too unwieldy for the sums that are sometimes involved.	+	While there are appropriate legal remedies available for such circumstances, they may be judged as being too unwieldy for the sums that are sometimes involved, as well as being time consuming, leading to a break down in relationships which may affect possible future work.

−	In addition, the risk of non-payment due to contractor insolvency ~~can~~ also ~~increase with~~ the longer ~~that~~ payment is delayed. Retention monies that are held when a contractor fails often end up going to ~~the~~ creditors instead of ~~the subcontractor~~, even though the failure is often ~~completely~~ unrelated to the subcontractor.	+	In addition, the risk of non-payment due to contractor insolvency also increases the longer payment is delayed. Retention monies that are held when a contractor fails often end up going to creditors instead of subcontractors, even though the failure is often unrelated to the subcontractor.

−	~~Even though they usually benefit from improved cash flow, retention~~ can also pose problems for main contractors. For example, when trying to recover retention monies from the client, perhaps in a situation where the client has incorrectly identified something as a defect.	+	Retention can also pose problems for main contractors. For example, when trying to recover retention monies from the client, perhaps in a situation where the client has incorrectly identified something as a defect.

−	For updates on retention reform, see [[Retention_in_construction_contracts#Reform\|here]].	+	For updates on retention reform, and potential alternatives, see [[Retention_in_construction_contracts#Reform\|here]].

	= Find out more =		= Find out more =