Conservative MP for Waveney, Peter Aldous, will introduce the Bill, which comes as a response to the UK construction industry’s financial crisis, with some contractors in severe financial distress.
Cash retentions are ostensibly withheld as security in case a firm fails to return to rectify non-compliant work. However, research commissioned by the Department for Business, Energy & Industrial Strategy (BEIS) has revealed that the monies are primarily withheld to bolster the working capital of the party withholding them.
Furthermore, the practice gives rise to widespread abuse with the monies being withheld for three or more years. The research also showed that over a three year period, £7.8 billion worth of retentions were left outstanding.
Mr Aldous said that he was concerned about the impact on SMEs: “I have been aware of retentions as an issue for a while, and with construction being a tough industry and uncertainty surrounding many aspects of the economy, small businesses need as much support as possible. There are a number of specialist engineering firms in Waveney, and what this Bill aims to do is to protect them and their livelihoods as well as 280,000 other construction SMEs nationwide.
“Over the past three years, £700 million worth of retention payments to small businesses were lost due to the insolvency of a client, and if a small business suffers from an upstream insolvency of this kind, they are punished twice: firstly with the loss of work, and secondly with the loss of retention money. We therefore need action on this before more millions are lost.
“SMEs are the backbone of the UK economy, which is why they need support and protection. This Bill is not about abolishing payment retentions; it is about making sure that people’s money is safe so that businesses can grow and invest in their future.”
Backing the introduction of the Bill, SEC Group chief executive Professor Rudi Klein stated: “I’m very grateful to Peter Aldous for initiating this. All that is required is mutuality of security. If cash retentions are required as a form of security, there must also be security for the cash, as exists in many other countries around the world.”