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.