SELECT is encouraging its members to have their say and take part in an industry-wide consultation on the use of cash retentions in construction.
Managing Director Alan Wilson believes that every member business should make their views known to the Scottish Government discussion before it closes on 25 March.
“This consultation gives everyone in our industry a great opportunity to make their voice heard when it comes to the ongoing issue of retentions,” he explains. “We know from member feedback that late and withheld payments caused by retentions continue to cause problems for businesses up and down Scotland. The disruption to all-important cash-flow doesn’t just cause financial worries – it can lead to serious mental health issues and depression. That’s why it‘s vital that SELECT members have their say and make their concerns known. Only by speaking out together can we hope to put an end to this outdated practice.”
The consultation was announced in December following an ongoing campaign by SELECT, working in partnership with the Specialist Engineering Contractors’ (SEC) Group.
SELECT and SEC Group Scotland have been carrying out extensive lobbying amongst members of the Scottish Parliament to encourage them to support legislation to ring-fence the monies.
Wilson, who is also National Executive Officer of SEC Group Scotland, adds: “Our message is clear: Cash retentions must be put in a ring-fenced account or scheme. In this way we are more likely to see the end of a 200-year-old measure that’s been abused to the detriment of small firms which often wait years to get retentions released.”
The new consultation comes after a review of the system of cash retentions carried out for the Scottish Government by consultants Pye Tait.
In the subsequent report, Tait says: “Qualitative evidence overwhelmingly shows that the biggest problem with the practice of retentions is the instability it creates for contractors at Tier 2 and below.Clients with experience of holding retentions in the last three years, say that, on average, retentions are used on 81% of all their current contracts. And the larger the organisation, the more likely they are to impose retentions on their sub-contracting firms.
A requirement for retentions to be held in a protected and separate location would meet almost all of the serious criticisms of the current retention systems.”
Cash retentions are deducted from due payments, ostensibly as security in case a firm fails to return to remedy non-compliant work.
In practice, the monies – which belong to the firms from whom they have been withheld – are used to bolster the cash reserves of large companies and even public sector bodies such as local authorities.
Various estimates put the loss of cash retentions from the Carillion collapse in 2018 as between £¼ billion and £½ billion.
SEC Group Scotland has reminded the Scottish Government that in a 2013 review of public sector construction, a recommendation was made that cash retentions should be kept in trust.
To take part in the consultation, click here.