15 November 2018

Retentions: the industry’s best hope

We need to change the culture of payment so that prompt payment is the model we work to.

Richard Beresford, chief executive of the National Federation of Builders said:

"Peter Aldous MP has managed to do what successive governments have failed to do. He has found an issue that needs fixing, proposed a solution and united the vast majority of the construction industry and MPs in support of his plan.

"The Aldous Bill proposes putting payments into trust. If there are insolvencies in the supply chain, those who are owed money will be insulated from losses. While there are some who favour other options, such as abolition, we cannot look at retentions in isolation.

"Retentions are inextricably tied to contracts which define how supply chain relationships work. Under what terms are we working? How is risk being managed and apportioned? How much collaboration will there be? Widely used contracts, such as those from JCT and NEC contain provisions for retentions, but these are often amended.

"If you are a tier one contractor, what is your payment record like? Are you convinced that you are working with an A-team of subcontractors or have the best removed themselves from consideration because of your record? If you are a subcontractor, are the benefits of working for a tier one, such as mentoring, promotion of health and safety standards, and skills development outweighed by the potential costs of chasing payment

"The construction industry was already well aware that it needed to improve its image with the general public and was taking steps to address that. However, the liquidation of Carillion was one of those stories that captured national headlines and highlighted procurement issues from awarding projects to contract terms and retention and payment arrangements.

"It cannot be a coincidence that construction has one of the worst payment records of any sector as well as the lowest rates of productivity. Scrutinising contracts for each project to assess the impact of amended clauses, and chasing payment and retentions shifts focus from core activities. When we do deliver, the results can be world class. Almost everything we build is visible and interactive. What we do can help welcome life, nurture our imaginations and sustain life. Much of it becomes an indelible part of the nation’s identity.

"We need to raise the base level of skills so that recalling subcontractors to fix defects becomes more rare. We need to change the culture of payment so that prompt payment is the model we work to.

It is fortunate when our interests and values align. When they don’t, we need to go with our values. If not, we find our image, reputation and ability to deliver at our very best will continue to suffer.

While so many of the industry’s structural challenges are linked, we need to start somewhere. Supporting an achievable, practical solution to an issue as fundamental as payment may be seen as an act of good faith. Sometimes, that first step is all that is needed to create the momentum we need to solve this issue and move on to the next challenge."

Peter Aldous MP will be speaking at the NFB’s annual conference on 26 November 2018. For further information and tickets visit: www.builders.org.uk/events/nfb-annual-conference-2018/