Construction industry bodies have delivered contrasting views on the future of retentions, as the government’s consultation on late payments closed on 23 October.
The consultation – part of Labour’s pledge to deliver the “toughest late payment laws in the G7” – sets out proposals that ministers describe as the most significant reforms in 25 years.
Late payment costs the economy £11bn annually and contributes to the closure of 38 businesses every day, according to the government.
It has tabled two options for retentions reform to hold large firms to account and support SMEs: an outright ban, or new requirements for funds to be held in protected accounts or backed by guarantees.
Build UK said it supported a full ban, calling retentions “problematic for all parties in the supply chain”, and arguing that prohibition would drive better payment practices and higher quality standards.
The Construction Industry Council (CIC) also leant towards abolition but said a protected-account model could be a “beneficial” compromise. It warned that an outright ban could lead to new payment structures emerging that might disadvantage smaller firms.
The Electrical Contractors Association said a ban might be effective but cautioned that poorly drafted legislation risked leaving “loopholes for retentions by another name”.
It recommended an 18-month transition period and said holding retentions in protected funds would be a fairer approach.
A similar opinion came from the Civil Engineering Contractors’ Association (CECA), which also warned against unintended consequences such as increased reliance on project bank accounts and performance bonds.
However, others urged caution against banning retentions. The British Property Federation said it opposed a complete ban, arguing that retentions “are often the only practical mechanism to ensure the delivery of defect-free buildings”.
Assistant director Sam Bensted warned that removing them entirely could increase investment risk and reduce investor appetite.
Industry groups were more united on the broader issue of payment practices.
Build UK, the CIC and CECA all backed removing the exemption that allows payment terms to extend beyond 60 days, while the ECA said the government should go further and push for a 30-day maximum.
The Construction Leadership Council did not submit a formal response but said it remained “very supportive” of stronger action on both late payment and retentions. The body plans to write to ministers once the sector’s overall position becomes clearer.
Read more here about industry bodies’ response to the government consultation.
