Publication - Research and analysis

Cash retention under construction contracts: consultation analysis

Published: 5 Nov 2020
From:
Director-General Economy
Directorate:
Chief Economist Directorate
Part of:
Public sector, Research
ISBN:
9781800042780

Findings of a public consultation on the practice of cash retention in public and private sector construction contracts in Scotland and to gather views on the findings of the supporting documentation.

47 page PDF

932.6 kB

47 page PDF

932.6 kB

Contents
Cash retention under construction contracts: consultation analysis
Annex C: List of 'Other' Answers to Question 'what would be your preferred form of assurance for construction projects'

47 page PDF

932.6 kB

Annex C: List of 'Other' Answers to Question 'what would be your preferred form of assurance for construction projects' 

"There are various Quality Initiatives currently ongoing in Scotland which ultimately should eradicate poor workmanship from construction contracts. The concept of Passive House, which combines zero carbon design with certified quality delivery will ensure that there are no significant defects (other than shrinkage). So the view of how construction is carried out should be considered rather than the idea of accepting defects as a 'Given' and then how you cater for the rectification of these. Future zero carbon design will drive this concept." 

"We need an industry wide drive on improving quality on projects and thus negating the need for retentions. Retention is draining badly needed cash flow."

"Longer term guarantee and no retention, insurance backed."

"A project account to hold client money, all contract works to be paid direct on approved application. This will protect the project, client, sub-contractors and other people in the supply chain in the event of the Main Contractor or client going into administration. In regards to retention, as a micro business I spend huge amounts of time chasing payment for retention emailing and phone calls. Sometimes I never get the money as it is not worth chasing or the company goes into administration before I get to them. The amount of ignored emails and phone calls is ridiculous. Retention should be automatically distributed to all contractors and trades as soon as it is received, you should not even need to apply. Very occasionally this does happen but the majority of the time you chase retention for a minimum of 6 months anything up to 4 years before you give up. It is common practice in the industry for trades to write-off retention before they begin, do a rush job and not return for defects this causes a problem for everyone involved in the project." 

"If there is a Project Bank Account [PBA], retentions could be protected within the PBA. Otherwise selection of firms based on their technical competence rather than on lowest price would reduce defects. Moreover, changing procurement strategies to include early supply chain involvement could help inform design decisions; poor design is often the cause of defects." 

"We must change procurement strategies so that the supply chain is involved in the design process from the outset to reduce the incidence of defects.  Furthermore firms should be selected on their demonstration of competence rather than on their ability to offer lowest price which often leads to defects. Until the procurement process is altered, these issues will remain in the industry."

"For major tier 1 Contractors, retention is not needed, just Parent Company Guarantees [PCGs]. For Tier 2 Contractors - Performance Bonds & PCG's or retention (not both). For Tier 3 - Retention funds" 

"We must change procurement strategies so that the supply chain is involved in the design process from the outset to reduce the incidence of defects.  Furthermore firms should be selected on their demonstration of competence rather than on their ability to offer lowest price which often leads to defects." 

"If there is a PBA, retentions could be protected.  Also selection of firms based on technical competence rather than lowest price would reduce defects, and changing procurement strategies to include early supply chain involvement could help inform design decisions - poor design is often the cause of defects."

"PBA , If there is a PBA in place, retentions or an agreed sum, could be protected within the PBA. and Firms should be selected on competence, not the lowest price, as this would reduce defects."

"Do not really understand the financial implication of systems above.  My experience of the retention process, as a sub-contractor, is that main contractors hold onto retention monies, earning interest, often for years with no triggers for retention release.  My preferred form of assurance would be that retention monies are held by an independent organisation for example; similar to the system for private landlord tenant deposits."

"Certification of partially completed works by qualified third party professional be it the architect, cost manager or engineer."

"Where applicable (such as larger public sector contracts), retentions can protected in project bank accounts.  For contractors working exclusively for domestic clients, the contract administrator or Quantity Surveyor should administer the retentions, not the client. In both cases, retentions will be held by a third party, such as a retentions deposit scheme. Indeed this is how escrow accounts operate."

"At present retentions are the simplest form of providing assurances within the construction Industry. The level they are set at and the timescales involved are however punitive. Furthermore if you are operating under more than one contract with a client separate retentions should not be held."

"A mixed approach of Bonds/Escrow and PCGs depending on the Client and Contractor involved in the contract. I also feel that the value of contract would determine what approach would be most effective. If the contract value is relatively low a cash retention may still be the most cost effective measure for both the Client and Contractor/Subcontractor, or in a Contractor/Subcontractor relationship."


Contact

Email: covid.construction@gov.scot