Cash retention under construction contracts review

10 December 2019

The Scottish Government is consulting on the practice of cash retention under construction contracts. It believes that some payment practices, such as a misuse or abuse of the cash retention process, are a barrier to investment, productivity and growth.

Retention is where part of a payment is withheld to incentivise contractors and subcontractors to correct any defects identified in a project in a set period of time, or to enable the procurement of another contractor to do so. In most cases, a retention is imposed by the client on the main or Tier 1 contractor and is mirrored in all subsidiary contracts throughout the supply chain. Concerns expressed by parts of the industry, however, have encouraged the Scottish Government to undertake a review of retention payments.

The consultation is supported by independent research from Pye Tait Consulting, which identifies the following key issues:

  • a significant proportion of companies say they deliberately avoid business in which retentions are involved

  • the current system operates to the advantage of clients and Tier 1 contractors, but to the disadvantage of medium and smaller companies, particularly where a contractor insolvency might occur

  • late and non-payment of retention monies is a significant issue for some contractors

  • a fairer, more neutral and more protected approach to assurance in construction contracts is required.

The consultation’s main purpose is to gather views and information on:

  • effectiveness of existing prompt and fair payment measures for retentions

  • views on the Pye Tait independent research on retentions in the construction industry

  • late and non-payment of retentions

  • effectiveness of existing alternative mechanisms to retentions

  • the benefit of holding retentions in a retention deposit scheme or trust account.

The consultation opened on 4 December 2019 and closes 25 March 2020. It can be found at consult.gov.scot.