Last edited 11 Dec 2020

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.

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