The practice of cash retention under construction contracts

Closes 13 May 2020

Opened 4 Dec 2019

Overview

There is evidence that some payment practices prevalent in the construction industry are a barrier to investment, productivity improvements and growth.  Cash retention, where the process is misused or abused, can be one such practice.

The retention system is a long-standing practice in the construction industry throughout the UK. A retention is money withheld from payment of a construction project. The purpose of a retention is to mitigate the risk of a failure to complete a construction project or a failure to rectify defects. The part of the contract sum which is held back is intended to provide a means of incentivising contractors and subcontractors to return to correct any defects during a specified period of time or to provide towards a means of funding the procurement of another contractor to do so if necessary, as outlined in contract terms and conditions. In most cases a retention is imposed by the client employing the main or Tier 1 contractor and this is mirrored in all subsidiary contracts throughout the supply chain.   

Following concerns expressed by parts of the industry, the Scottish Government agreed to undertake a review of retention payments. To support the review, the Scottish Government commissioned independent research from Pye Tait and that research is published alongside this consultation. It illustrates the challenges with retentions - in particular understanding the extent to which this practice has a negative impact and what solutions would be effective and proportionate in addressing this.   

Why We Are Consulting

The purpose of this consultation is to seek information 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 publshed with this consultation.

In addition to asking questions about the Pye Tait research “Retentions in the Scottish Construction Industry” we are also asking for views on the potential impacts of introducing legislation in this area.

Read the consultation paper.

Give us your views

Interests

  • Economy