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Last edited 15 Mar 2019
Campaign for cash retentions reform
|A total of 271 MPs across all parties support the reform of cash retentions.|
Retentions are held by private and public sector clients against their subcontractors, with over £10.5bn of SME working capital locked in retentions annually. Some £7.8 billion of this has been unpaid in the last three years.
However, the system is often abused, negatively impacting many businesses in construction, particularly SMEs.
As a result, ECA, BESA and various partner organisations have been pressing Government to reform this practice. Reform of cash retentions in construction is now supported by a broad range of politicians, business bodies, construction trade associations, and professional bodies.
 Impact of retentions
Deprivation of working capital leaves businesses unable to grow (bid for new work), invest (engineering R&D and investment in digital transformation), recruit (new workers and apprentices), pay tax bills, and therefore precludes productivity improvement.
In the UK, recent government research shows £700m of retentions were lost from upstream insolvency over a three-year period (prior to the collapse of Carillion). For each working day, the industry loses almost £1m, £4.5m per week or £20m per month.
Research has found that SMEs spend on average 130 hours per year chasing late payment from larger firms. And 34% of SMEs borrow to cover cash-flow issues caused by cash retentions. Often this is written off as bad debt, due to the resource implications of chasing monies due.
Cash flow issues leave businesses unable to:
The knock-on effects of cash retentions can also include stress and mental health issues.
 About this article
This article is an amalgamation of two articles that first appeared on the website of the Electrical Contractors’ Association (ECA) in March 2019: 'About the campaign' can be accessed here ; the 'Impact of retentions' can be accesed here.
 Related articles on Designing Buildings Wiki
- Retention bond
- Retention in construction contracts
- Defects liability period DLP
- Construction (Retention Deposit Schemes) Bill 2017-19
- Performance bond for construction
- Defects in construction
- Bonds in construction contracts
- ECA articles
- Final account
- Final certificate for construction contracts
- Liquidated damages in construction contracts
- Valuation of interim payments
- Right to payment
- Variations in construction contracts
- Contract sum
- Domestic sub-contractor
- Insolvency in the construction industry
 External references
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