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 E: Summary of Consultation Questions

47 page PDF

932.6 kB

Annex E: Summary of Consultation Questions

Question 1: Do you agree with the Pye Tait conclusion/area for potential further investigation that "the financial consequences for contractors and subcontractors in the event of a large organisation going into liquidation can be significant"?

Question 1a: Do you agree with the Pye Tait conclusion/area for potential further investigation that "retention money held in a main bank account can be used by the holder to fund expenditure on labour, plant and materials on other projects and/or as part of working capital"?

Question 1b: Do you agree with the Pye Tait conclusion/area for potential further investigation that "some companies deliberately avoid business in which retentions are involved?"

Question 1c: Do you agree with the Pye Tait conclusion/area for potential further investigation that "alternatives to common retention practices are available but used infrequently"?

Question 1d: Do you agree with the Pye Tait conclusion/area for potential further investigation that "the retention system in Scotland works reasonably well when all parties adhere to the letter and spirit of the agreement"?

Question 2: Which of the following do you believe to be the intended purpose of retentions as part of construction contracts? If Other - Please specify 

Question 3: Do you agree that some form of assurance is needed in construction contracts? 

Question 3a: How effective do you feel the current system of retention is? 

Question 4: Do you agree that retentions are the best form of assurance within construction contracts? 

Question 4a: If you answered no to Question 4 (i.e. you do not think retentions are the best form of assurance within construction contracts) what would be your preferred form of assurance for construction projects?

Question 5: The recommendation made within the Pye Tait research is - "That action should be taken to create a fairer, more neutral and more protected approach to the practice of retentions" Do you agree with this recommendation?

Question 5a: If you answered yes to question 5 - how do you feel this could be achieved? 

Question 5b: If you answered no to question 5 - what would you suggest for the practice of retentions? 

Question 6: Do you actively avoid bidding for contracts subject to retention? 

Question 6a: If so, would you bid for contracts if an alternative to the current practice of retention was established or as Pye Tait recommend a "fairer, more neutral and protected approach to the practice of retentions"?

Question 7: If you were unable to use retentions what method of assurance would you use? 

Question 7a: If you were unable to use retentions would your cashflow be affected? 

Question 7b: If you answered yes above, what impact would not being able to use retentions for cashflow have on your business? 

Question 8: Is there anything else you would like to say about the Pye Tait research? 

Question 1: Can you provide an estimate of the total number of construction contracts that your business both secured and issued over the last 12 months?

Question 1a: What was their approximate combined value? 

Question 1b: Of the total construction contracts over the past twelve months, how many had retentions written into the contract (i.e. a client or main contractor is holding a retention against you or where you are holding a retention over others?)

Question 1c: Approximately how many of your current contracts with retentions (where you are holding a retention or are subject to a retention) are for work undertaken in a) the public sector and b) the private sector (if zero enter 0)

Question 2: How significant an issue do you think non-payment of retentions is in the construction sector? 

Question 2a: What, in your experience, are the main reasons for non-payment of retentions? 

Question 3: If you have been holding retentions within the last 12 months and withheld payment. What were the reasons for doing so?

Question 3a: If you have been subject to a retention within the last twelve months and this was not repaid - what were the reasons for non-payment?

Question 4: Approximately, what was the total value of retentions due to be released to you or by you over the last twelve months? 

Question 5: If retention money was due to you in the last twelve months, approximately how much of this was not released? 

Question 5a: If you were due to release retention money in the last twelve months, approximately how much of this was not released?

Question 5b: Please provide further details on the reasons for this non-payment. Of the amount of retention not released, how much falls into each of the categories below:

Section B - 5b The company holding the retention became insolvent (Please provide cash value) 

Section B - 5b Payer cited that obligations under another construction contract had not been met (Please provide cash value)

Section B - 5b I did/contractor did not return to fix defects (Please provide cash value £) 

Question 6: How much of the retentions not paid (question 5) were in your view unjustified within the contract terms? 

Question 6b: Why did you feel the non-payment of your retention was unjust? 

Question 7: Did you challenge the non-payment that occurred due to the payer citing obligations under another construction contract not being met (outlined in question 5a)?

Question 7a: What happened when you challenged the non-payment?

Question 1: How significant an issue do you believe late payment of retentions is in the construction industry?

Question 2: Approximately what was the total value of retentions due to be released to you over the last twelve months that were paid late?

Question 3: Please provide further details on the reasons for late payment. Of the amount of retention paid late how much falls into each of the categories below?

Question 3a: What percentage of the retentions paid late (question 2) were in your view unjustified within the contract terms. 

Question 4: For the amount that you believe was 'unjustified' what was the typical length of delay? 

Question 4a: Can you provide an estimate of the cost to your business in pursuing late (including those that were ultimately unpaid) retention payments over the last twelve months?

Section C - 4a: As a value of your total construction contracts with a retention (Please provide cash value £)

Question 5: Did you challenge the late payment that occurred due to the payer citing that obligations under another construction contract had not been met (outlined in question 3)?

If you answered no above - why did you not challenge the late payment? 

Question 5a: What happened when you challenged the late payment? 

Question 6: Were you previously aware that the 2011 amendments to the "Housing Grants, Construction and Regeneration Act 1996" mean it is no longer possible to make payment, including retention payments, conditional on the performance of obligations under another contract?

Question 6a: Would you have challenged the late-payment (due to performance of obligations under another contract), if you had known that this is what the "Housing Grants, Construction and Regeneration Act 1996" means for retention payments?

Question 6b: How could future amendments to the "Housing Grants, Construction and Regeneration Act 1996" be better promoted to raise awareness?

Question 7: It has been suggested that some parties to construction contracts ask contractors to give an overall discount on the contract price or interim payment related thereto, in return for ensuring prompt payment. Have you encountered this practice?

Question 8: It has also been suggested that some companies artificially inflate their tender price where a retention is being applied. Have you encountered this?

Question 9: Do you have any further comments on late and non-payment of retentions? 

Question 1: Over the last twelve months, approximately how many of your construction contracts, have had alternative mechanisms to retentions, or alternative mechanisms for implementing retentions applied?

Question 1a: Which alternative mechanisms were utilised? 

Question 1b: Were these additional mechanisms used in addition to or as an alternative to retentions?

Question 1c: Which of these do you think would be applicable for wider use across the whole sector? 

Question 1d: Please explain the reasons for your answer to question 1c 

Question 2: Do you think it's important for Scotland to use the same mechanism of assurance in construction contracts as the rest of the UK?

Question 3: To what extent do you agree that a retention deposit scheme to protect retentions should be applied to the whole sector?

Question 3a: Please explain the reasons for your answer to question 3 

Question 4: How strongly do you believe that a retention deposit scheme and/or holding retentions in trust could eliminate some of the critical issues associated with retentions (notably the risk of delayed or non-payment of retention monies) and provide surety against defects.

Question 4a: Please explain the reasons for your answer to question 4. 

Question 5: Do you have any further comments on alternative assurance mechanisms available to the construction sector? 

Question 1: Do you think a retention deposit scheme could be used for all contracts or only for contracts over a certain value? 

Question 1a: Is it important to place a threshold on the application of any measure requiring retentions to be held in trust or ring-fenced in another way and, if so, at what minimum value of the total retained money (the retention) should it commence?

Question 2: To what extent do you think a retention deposit scheme may allow for a fairer approach to retentions? 

Question 2a: To what extent do you believe a retention deposit scheme allows for a more neutral approach to retentions? 

Question 2b: To what extent do you think a retention deposit scheme may allow for a more protected approach to retentions? 

Question 3: Which of the features listed below do you believe should be included within a potential future retention deposit scheme?

Question 3a: Are there any additional features to the operation of a "retention deposit scheme" that you would recommend? 

Question 4: Were you to have retentions held from you, what cost per contract (as a percentage) would you be willing to incur if it meant that your retention was held in trust in a retention deposit scheme?

Question 4a: Is the price you would be willing to pay for a retention deposit scheme dependent on contract value? 

Question 4b: If you currently hold retentions, what cost would you be willing to pay (per contract) for the administration of a retention deposit scheme?

Question 1: What is your name? 

Question 2: What is your email address? 

Question 3: Are you responding as an individual or an organisation? 

If responding on behalf of an organisation, please enter the organisation's name here. 

Question 3a: If you are responding as an organisation does your business work on construction projects across the United Kingdom?

Question 4: Are your business headquarters registered in Scotland? 

Question 4a: What is the nature of your business within the construction sector? 

Question 4b: How many direct employees (i.e. excluding sub-contractors) does your business have? 

Question 4c: What is your experience of retentions in the construction industry?

Question 4d: What SIC codes does your company operate under? 

Question 5: The Scottish Government would like your permission to publish your consultation response. Please indicate your publishing preference:

Question 6: We will share your response internally with other Scottish Government policy teams who may be addressing the issues you discuss. They may wish to contact you again in the future, but we require your permission to do so. Are you content for Scottish Government to contact you again in relation to this consultation exercise?

Question: Please help us improve our consultations by answering the questions below. (Responses to the evaluation will not be published.)

Matrix 1 - How satisfied were you with this consultation? 

Matrix 1 - How would you rate your satisfaction with using this platform (Citizen Space) to respond to this consultation? 


Contact

Email: covid.construction@gov.scot