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
Footnotes

47 page PDF

932.6 kB

Footnotes

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

2.  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? Section E - 1a

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

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

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

6.  Available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/868630/retention-payments-in-the-construction-industry-summary-of-responses.pdf

7.  Available at: https://consult.gov.scot/industrial-sectors/retention-payments-in-construction/supporting_documents/Retentions%20in%20the%20Scottish%20Construction%20Industry%20Pye%20Tait%20report.pdf

8.  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? Section B - 1 Total number of contracts secured There were 18 responses to this part of the question. Section B - 1 Total number of contracts issued

9.  Question 1a: What was their approximate combined value? Section B - 1b

10.  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?)

11.  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) Section B - 1d public sector There were 19 responses to this part of the question. Section B - 1d private sector

12.  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 organisations going into liquidation can be significant"? Section A - 1

13.  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"? Section A - 1a

14.  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?" Section A - 1b

15.  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"? Section A - 1c

16.  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"? Section A - 1d

17.  Question 2: Which of the following do you believe to be the intended purpose of retentions as part of construction contracts? Section A - 2

18.  Question 3: Do you agree that some form of assurance is needed in construction contracts? Section A - 3

19.  Question 3a: How effective do you feel the current system of retention is? Section A - 3a

20.  Question 4: Do you agree that retentions are the best form of assurance within construction contracts? Section A - 4

21.  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? Section A - 4a

22.  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? Section A - 5

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

24.  Question 6: Do you actively avoid bidding for contracts subject to retention? Section A - 6

25.  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"? Section A - 6a

26.  Question 7: If you were unable to use retentions what method of assurance would you use? Section A - 7

27.  Question 7a: If you were unable to use retentions would your cashflow be affected? Section A - 7a

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

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

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

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

32.  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? Section B - 3a

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

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

35.  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:

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

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

38.  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)? Section B - 7

39.  Question 7a: What happened when you challenged the non-payment? Section B - 7a

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

41.  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? Section C - 2

42.  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?

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

44.  Question 4: For the amount that you believe was 'unjustified' what was the typical length of delay? Section C - 4

45.  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?

46.  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?

47.  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)? Section C - 5

48.  Question 5a: What happened when you challenged the late payment? Section C - 5a

49.  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?

50.  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? Section C - 6a

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

52.  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? Section C - 7

53.  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? Section D - 1

54.  Question 1a: Which alternative mechanisms were utilised? Section D - 1a

55.  Question 1b: Were these additional mechanisms used in addition to or as an alternative to retentions? Section D - 1b

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

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

58.  Question 3a: Please explain the reasons for your answer to question 3 Section D - 3a

59.  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. Section D - 4

60.  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? Section E - 1a

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

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

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

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

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

66.  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? Section E - 4

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

68.  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? Section E - 4b


Contact

Email: covid.construction@gov.scot