Retention held in trust fund
Retention is a percentage (often 5%) of the amount certified as due to a contractor on an interim certificate, that is retained by the client. The purpose of retention is to ensure that the contractor properly completes the activities required of them under the contract. Half of the amount retained is released on certification of practical completion and the remainder is released upon certification of making good defects. For more information, see Retention.
However, retentions can be considerable sums of money and they can cause cash flow problems for contractors, in particular if there are difficulties or disputes in relation to their payment.
In October 2017, the government published the Pye Tait review which sought to assess the costs and benefits of retentions along with a number of alternative mechanisms for ensuring completion of the works.
One of the suggested alternatives was that retention could be held in a trust fund. This can help guard against the risk of the client’s insolvency, as the retention money would not form part of their assets and so could still be received by the contractor. Control over the fund is passed on to an independent agent.
Those who oppose this solution argue that it reduces the available capital that can be paid out to creditors in the event of client insolvency.
It had appeared that the industry was not particularly supportive of using retention trusts. In March 2015, a petition on their use closed having attracted fewer than 2,000 signatures.
However, in 2017 and 2018, support for their introduction increased, in particular following the collapse of Carillion.
On 26 April 2017, Alan Brown MP introduced the Construction Industry (Protection of Cash Retentions) Bill, but it did not progress because of the general election.
In October 2017, the government published the Pye Tait review; Retentions in the Construction Industry, which proposed the introduction of trusts for retention.
In January 2018, former charted surveyor Peter Aldous MP introduced The Construction (Retention Deposit Schemes) Bill 2017-19 to Parliament under the Ten Minute Rule.
By April 2018, more than 100 MPs (around 1 in 6 of all MPs) had expressed their support for the 'Aldous Bill', which calls on government to introduce new legislative proposals to place cash retentions in deposit protection schemes. The bill has received signatures from 61 MPs, including the Green co-leader Caroline Lucas, the shadow Chancellor John McDonnell, the Conservative MP Ken Clarke, and the Liberal Democrat leader Vince Cable.
In addition, since Carillion's collapse, a coalition of more than 75 trade bodies has united behind Aldous' reform proposals, and later in April are due to present a petition to 10 Downing Street.
[edit] Find out more
[edit] Related articles on Designing Buildings Wiki
- Construction (Retention Deposit Schemes) Bill 2017-19.
- Construction supply chain payment charter.
- Fair payment practices for construction.
- Holdback.
- Performance bond.
- Project bank accounts.
- Pye Tait review.
- Retainage.
- Retention.
- Retention bond.
- Right to payment.
- The causes of late payment in construction.
- The problems with retention.
Featured articles and news
Investors in People: CIOB achieves gold
Reflecting a commitment to employees and members.
Scratching beneath the surface; a guide to selection.
ECA 2024 Apprentice of the Year Award
Entries open for submission until May 31.
UK gov apprenticeship funding from April 2024
Brief summary the policy paper updated in March.
For the World Autism Awareness Month of April.
70+ experts appointed to public sector fire safety framework
The Fire Safety (FS2) Framework from LHC Procurement.
Project and programme management codes of practice
CIOB publications for built environment professionals.
The ECA Industry Awards 2024 now open !
Recognising the best in the electrotechnical industry.
Sustainable development concepts decade by decade.
The regenerative structural engineer
A call for design that will repair the natural world.
Buildings that mimic the restorative aspects found in nature.
CIAT publishes Principal Designer Competency Framework
For those considering applying for registration as a PD.
BSRIA Building Reg's guidance: The second staircase
An overview focusing on aspects which most affect the building services industry.
Design codes and pattern books
Harmonious proportions and golden sections.
Introducing or next Guest Editor Arun Baybars
Practising architect and design panel review member.
Quick summary by size, shape, test, material, use or bonding..