60% of engineering firms say turnover is held in retentions
Nearly 60% of engineering services businesses say that a substantial portion of their turnover is currently being held by firms up the supply chain, according to new survey.
In the survey, conducted by the Building Engineering Services Association (BESA), Electrical Contractors’ Association (ECA) and Scottish electrical contracting body SELECT, 56% stated their turnover was being held while almost one in three businesses (32%) responding said 3-10% of their turnover was being held in retentions. A further one in five SMEs said that 1-2% of their turnover was tied up in retentions.
A further five businesses said that 11% or more of their turnover was currently being retained by clients and main contractors. One of those five firms said that more than 20% of its turnover was being held in retentions.
Despite the findings, 81% said their turnover had “increased or stayed the same” during Q3, compared to the previous quarter.
The overall survey covered the third quarter of 2017 and included 341 responses.
ECA, chief executive, Steve Bratt, commented: “The major problems associated with cash retentions in construction have been amply described in the recent Pye Tait review. In addition to being at risk from upstream insolvency, smaller businesses can’t invest enough in skills or equipment, or help to improve industry productivity, if their cash flow is restricted in this way.”
SELECT managing director Newell McGuiness added: “Retentions remain a blight on the construction industry. Retention sums are often withheld for longer than necessary and are often not repaid in full if at all. It is vital that changes are made to protect businesses from this archaic practice.”
The three sector trade bodies are calling for cash held in retentions by clients and main contractors should be held in trust, at the earliest opportunity. This is mainly to help protect contractors from the serious risk of upstream insolvency.
The survey findings coincide with a government consultation on retentions in the construction industry, which is open until 19 January 2018.