The session was held to examine the practice of retentions in the construction industry. The two committees heard evidence that this practice was severely damaging the viability of small businesses in Wales. Seemingly, cash retentions are deducted as security in case a firm fails to return to remedy defects; in practice the monies are withheld to bolster the working capital of the withholder and either are never released or are released some years after the work has been completed.
Catherine Griffith-Williams, national executive officer for SEC Group Wales/Cymru, said the biggest risk for small firms was insolvencies up the supply chain: “The collapse of the large Welsh-registered construction company Dawnus in March this year left £39 million owing to firms in their supply chain, most of which were SMEs. The bulk of this sum would have been retention monies.”
FMB Cymru’s Ifan Glyn added that every small builder in Wales would welcome legislation that protected their retention monies: “These monies belong to the firms from whom they have been withheld. Legislation is the only way to curb the widespread abuse associated with this practice which, paradoxically, inhibits small businesses from investing in the skills and technologies necessary to enhance quality.”
Kyle Spiller MCIOB, director of a regional specialist contractor, told the two committees that waiting for and chasing up retentions placed a huge burden on his business: “Not only does the tracking of retentions deducted require sophisticated accounting practices, the manpower required to continuously follow up and request releases of retention payments is extremely burdensome.
“In our organisation chasing retention payments account for approximately 14 days of resource per annum, allocation of such resource to these tasks is simply not financially viable for smaller organisations.”
The committees were invited to recommend the following:
- Legislation to protect Welsh SMEs by ring-fencing cash retentions in trust as is the case in many other countries.
- All public bodies in Wales to require its tier one contractors to place retentions from its supply chains in trust or, alternatively to issue a bank guarantee to ensure the monies will be available for release.
- Where project bank accounts are used public bodies to place retentions into these accounts which have trust status.
- Welsh Government to support the development of a new digital platform which will provide the necessary functions for ring-fencing retention monies.