SELECT MD Alan Wilson has told a UK-wide radio audience that cash retentions ‘disproportionately penalise small businesses’ in the construction industry.
Speaking on the Thomas Nagy Electrical Show on Fix Radio, he added that the time has come to end the ‘outmoded system’ and find a solution to the ‘clunky and difficult’ practice.
Alan Wilson said, “Construction is one of the few sectors operating this system. The principle being that clients and main contractors hold back a sum of money in case contractors do not complete the works they are contracted to do, is understandable, but in many cases now it is simply used to enhance cash flow, Carillion being the obvious example.
“The fact is that it is a clunky and difficult means of contract completion which disproportionately penalises small businesses. It effectively has become an opportunity for certain bodies to penalise sub-contractors.
“Every part of the construction industry has its own issues with retentions, depending on where they are in the supply chain. For instance, electricians and plumbers work near the end of a contract, whereas ground workers are at the beginning and, in some cases, might have to wait years before a client pays on completion.”
The comments came just weeks after a review by the short life working group (SLWG) on cash retentions in Scotland, which made a number of recommendations to deal with the issue, including the introduction of a retention deposit scheme, best practice policy and automatic release of retentions as early as possible.
Mr Wilson said SELECT would like the government to put retention monies into trust in the short term and do away with the system completely in the longer term.
He added, “What we have to remember is that retentions take money out of the industry which cannot then be reinvested. Companies cannot invest in resources such as people, or apprenticeships, or even new or updated vans. If they cannot reinvest, the whole economy suffers.”