Fixing the system after Carillion
The abolition of the outdated approach to cash retentions can allow the industry to be an engine of jobs and growth for the UK economy, says Mike Giles.
Since the collapse of Carillion in January, long-running issues surrounding late payments and retentions have shot to the fore.
Withheld cash retentions made up a significant proportion of the huge amount Carillion owed to subcontractors when the company was liquidated. The practice has since been criticised by many across the political spectrum.
The Electrical Contractors Association (ECA) and the Building Engineering Services Association (BESA) have been at the forefront of lobbying to reform the outdated construction industry approach to retentions. We are currently calling on the government to introduce a system where retentions are held in trust, as part of a roadmap of reform that will lead to their eventual abolition.
In December last year, we brought together a coalition of over 20 professional bodies and trade associations to sign an open letter calling on government to legislate as soon as possible for a retentions trust scheme to be introduced.
We have since seen a remarkable amount of support – over 60 bodies now support our proposals for reform. Peter Aldous, Conservative MP for Waveney, is leading parliamentary activity to protect retentions. He introduced a 10-minute rule bill into parliament in early January on placing retentions in trust, just days before Carillion went into liquidation.
The bill passed its first reading, without political opposition, and it has received mounting support, since Carillion’s collapse.
The bill has ensured that a growing cross-party group of MPs and peers now support reform in this key area, with representatives from the Conservatives, Labour, Liberal Democrats, Green Party, SNP and the DUP.
Moving forward, ECA, along with the BESA and other members of the SEC Group, have agreed a five-point plan, which we have raised with senior politicians. This includes pressing for contractors to be paid directly through mechanisms such as project bank accounts, legislative and policy action to prevent late payment, and, as noted above, retentions being held in trust.
“Business as usual” is simply not an option moving forward. Our work with industry partners and government is intended to ensure that concrete steps are taken to improve the commercial environment for businesses, and protect the supply chain from future insolvencies.
Mike Giles is head of communications and public affairs for ECA