The Construction (Retentions Abolition) Bill 2021-22 receives its first reading

What does the Retentions Abolition Bill say?

The Retentions Abolition Bill, which can be found here is brief but proposes the following:

• Any clause in a construction contract (as defined by the Housing Grants, Construction and Regeneration Act)) which enables a payer to withhold retention monies will be of no effect from 25 January 2025
• Any retentions withheld at that date must be repaid in full within 7 days

There is no provision for how such a regime would work where the party withholding retention has a legitimate basis for withholding sums.

Problems with retention

Issues with retention monies not being released on time, or at all, are not new and have received government attention for some years now.

In October 2017, a consultation was undertaken to review the use of retentions in the construction industry. Among its key findings, published in February 2020, were that small business within supply chains were among those hardest hit by retention non-payments. However, the consultation fell short of making a firm recommendation, concluding:

Whilst reform at some level had support from Government, it was a private members bill (the Aldous Bill), which proposed a third party deposit scheme, that received support from many in the industry. That Bill fell victim to delays in Parliament preventing its passage in 2019 and the issue has not been re-introduced since.

Similar solutions have been enacted elsewhere, for instance New South Wales requires that retention money held on projects over $20million must be held in a trust account with an authorised institution. In New Zealand, a bill is currently progressing through Parliament requiring retention monies to be held on trust, backed by fines as a sanction for non-compliance.

The significant impact on business’ cash flow and the issue of parties becoming insolvent, with their supply chain’s retention simply another unsecured debt, would be addressed by a deposit scheme. However, the latest proposal of abolishing retentions altogether, removing a well-established protection for Employers, is likely to be seen as a step too far.

The Retention Abolition Bill is at an early stage and will now progress to its Second Reading. The debate may progress further; however, without obvious Government or industry support for such a drastic change to industry practice, it seems very unlikely to pass. Nonetheless, it may serve to reignite the discussions around retention reform and bring support for a more measured reform.

This article has been co-written by Tobias Prowting and Simon Lewis.