Construction firms' £1bn retentions black hole
An analysis of the UK’s top 12 construction companies by the Specialist Engineering Contractors’ Group has revealed that they are owed a combined £1bn in retentions by their customers.
However, smaller suppliers are footing the bill, with an estimated £800m withheld from supply chains to cover the cash flow shortfall.
One company withheld money from its supply chain that was 1.5 times greater than the value that had been withheld by its own customers, the group found.
About £3bn in cash retentions is outstanding in the UK.
Professor Rudi Klein, SEC chief executive, said: “There is no other industry sector in the UK where such a large amount of cash is at risk, especially for SMEs. By the time these monies are released back to SMEs in the supply chain some years would have elapsed. In a high proportion of cases the retention represents the profit element for SMEs.”
SEC estimates that £400m would have been held by public sector bodies. In this case the retentions provided by the top contractors would not be at risk (since public bodies do not go into insolvency), but there is still a significant risk for the SMEs lower down the supply chain.
With the publication of a government review of the retentions system imminent, SEC is urging the government to introduce legislation to protect or ring-fence cash retentions to remove the insolvency risk and to ensure that retentions are released on time. Such legislation already exists in parts of Europe, Australasia and North America.