Construction Contracts Update: Build UK publishes Minimum Standards on Retentions
The use of cash retentions in the construction industry is increasingly being questioned. The Department for Business, Energy and Industrial Strategy published a consultation paper in October 2017, together with research paper which looked at whether use or misuse of cash retentions is prevalent. More recently, a Private Members' Bill proposed that all cash retentions should be transferred into a scheme similar to the rent deposit scheme.
Now (in June 2019), Build UK, the UK's leading representative organisation for construction industry members, has published new minimum standards on the use of cash retentions. This publication forms part of Build UK's drive to abolish retentions entirely from the construction industry by 2025.
The Build UK Guide sets out draft wording to amend to the industry standard-form JCT Design & Build (2016 edition) Main Contract and Sub-contract and NEC4 Engineering & Construction Contract and Sub-contract. The suggestions are based on several points of policy, which Build UK say should be adopted throughout the contractual make-up of the project in question. These are:
- Retention arrangements contained in any subcontract should be "no more onerous" than any retention arrangements contained in the main contract;
- Retention should only be deducted from payments made in respect of permanent works and not temporary or preliminary works. To this end, Build UK suggest introducing provisions specifically excluding temporary or preliminary works from the contractual retention mechanism;
- Where a contract (of any tier) has a starting value below £50,000, there should be no retention applied at all as the value is too low to justify retention. From 2021, this should be the case for any contract (of any tier) with a starting value below £100,000;
- Any retention should be deducted "as a single sum towards the end of the construction period" and not by way of interim payments throughout construction. In their draft amendments to the JCT Design & Build main contract and NEC4 Engineering & Construction main contract, Build UK suggest that deduction occurs at practical completion;
- The maximum retention percentage should be 1.5% - half of the rate contained in the standard-form JCT Design & Build contract. Build UK propose that this rate drop to 1% from 2021; and
- The release of any retention under a subcontract should not be linked to the release of a retention under the main contract. The releases should operate independently with their own trigger(s) for release.
Build UK warn that their minimum standards, "should not be viewed as best practice". In particular, Build UK refers to sectors where as a minimum standard cash retentions are already not accepted (providing the examples of the piling and lift sectors). Build UK encourage those sectors not to introduce their minimum standards, but instead to continue to refuse cash retentions. It is clear that the goal for Build UK remains the abolition of cash retentions in the construction industry in the coming years.
Of course, whether the construction sector will be freely willing to relinquish the use of cash retentions will be dependent upon whether the alternative solutions available are cost effective. Either way, the direction of travel seems to be that the days of having cash retentions are numbered.
You can read Build UK's new minimum standards for the use of cash retentions here.