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Local authorities drawn into retentions debate
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The Specialist Engineering Contractors’ (SEC) Group is calling on construction procurers in local authorities to protect retention monies belonging to SMEs in their supply chains
related projects procured by local authorities and the lack of guidance on best practice. The research, based on data gathered through the Freedomof Information Act, also revealed a lack of oversight by councils of payment performance along the supply chain.
T
Post-Carillion Parliament is becoming increasing anxious about the position of SMEs
Key results from the survey: • The overwhelming majority of local authorities
Ko ey results fromthe survey:
(almost 77%) deduct a 5% cash retention: 16% of them deduct cash retentions in excess of 5% (their main contractors will then deduct similar levels of retentions across the ir supply chains). • The majority of councils (53%) use cash
retentions to bolster their working capital or fund other activities
• 22% of councils do not deduct cash retentions at all. However, only four of them (1.5%) insist that their main contractors do not deduct retentions from the suppl y chain.
• The vast majority of councils (80%) do not pass on any contractual requirements to their main
his follows an extensive survey of English local authorities which has highlighted the use of cash retentions in construction-
suppliers or check on whether main contractors are releasing retention monies (of their sub- contractors) on time (or at all).
In addition n addition
• Over 62% of councils are failing to comply with legislation requiring them to ensure that 30-day payment clauses are included in sub-contracts and sub-sub-contracts (although 22% said they intend to do this). These clauses also apply to retentions whichmust be released within 30 days of becoming due for release.
• Only 12% of councils have put in place some monitoring and reporting arrangements that sub- contractors are paid within 30 days (though 17% said that they are considering implementing some monitoring arrangement in the future). Commenting on the survey results, small business commissioner Paul Uppal said that public procurement can drive positive change across the supply chain.
He added: “Local authorities should consider how their projects can support small firms in their areas by insisting on fair treatment of their supply chains – ensuring that 30-day payment clauses are inserted and observed in supply chain contracts and that retentions, if held, a fenced and released promptly across t
he supply re ring-
chain. As small business commissioner, I am particularly concerned about the impact of payment problems on the mental health of those running small businesses. A statistic that I find
particularly shocking is that construction workers are six times more likely to die by suicide than by falling from height.”
SEC Group president Lord O’Neil said that post- Carillion Parliament was becoming increasingly anxious about the position of SMEs in construction: “We have repeatedly asked government to take action on cash retentions by adopting the Peter Aldous Bill to protect the supply chains’ cash. When local authorities hold retentions from their main contractors, the monies are de facto guaranteed – they won’t go bust. When the main contractor holds retentions, there is no such guarantee for their sub-contractors.”
SEC Group is asking local authorities to adopt guidance on the protection of retentions in their supply chains. They should ask contractors on their approved suppliers’ lists to include a contract clause; this should protect retentions main
contractorsmay hold across their supply chains in the event of their insolvency.
SEC Group is also asking the government to strengthen the Public Contract Regulations by: • making it a statutory requirement that all suppliers will be paid within 30 days on public sector projects;
• including an option for public bodies to make direct payments to sub-contractors;
• including a yellow/red card system that bars firms from working for the public sector for up to three years where they have not complied (following warnings) with paying within the statutory 30 days.
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August 2018
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