Findings come as government considers reform of retentions system
Nearly six in 10 engineering services businesses (56 per cent) say that a substantial portion of their turnover is currently being held by firms up the supply chain, according to new survey findings from the BESA, ECA and SELECT.
Almost one in three businesses (32 per cent) responding to the survey, which covered the third quarter of 2017, said 3 – 10 per cent of their turnover was being held in retentions. A further one in five SMEs (22 per cent) said that 1 – 2 per cent of their turnover was tied up in retentions.
An additional five businesses said that 11 per cent or more of their turnover was currently being retained by clients and main contractors. One of those five firms said that over 20 per cent of their turnover was being held in retentions.
ECA CEO 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.”
BESA Deputy CEO Bruce Kirton said: “Late payment puts companies out of business and drives up stress levels in an industry already dogged by serious mental health problems. It has been a source of frustration and fury in our sector for decades and, despite upwards of 20 government-backed ‘measures’ or voluntary ‘initiatives’ it continues to threaten the very existence of many SMEs.
“The government has launched yet another consultation on this issue, but the evidence is already overwhelming. Legislation that ensures retention monies are protected and used for the purpose for which they are intended is long overdue.”
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 have advocated that 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. This approach is already successfully operated in Australia, for example.
The Q3 sector-wide ‘Building Engineering Business Survey’, sponsored by Scolmore, received 341 responses from SELECT, ECA and BESA members during October.
The survey findings coincide with a government consultation on retentions in the construction industry, which is open until 19 January 2018. To find out more about the consultation, please visit: https://beisgovuk.citizenspace.com/im/retention-payments-in-the-construction-industry/
Despite the findings on retentions, some eight in 10 respondents (81 per cent) said their turnover had ‘increased or stayed the same’ during Q3, compared to the previous quarter.