Build UK, the Civil Engineering Contractors Association (CECA), and the Construction Products Association (CPA) issued the call in response to a Government consultation on the Practice of Cash Retention under Construction Contracts.
Together, each organisation represents the supply chain, from clients and the contracting supply chain to manufacturers and suppliers.
In a joint statement, Build UK, CECA and the CPA said: "Cash retention – the withholding of a percentage of payment on construction work until it is certified as having been completed free of defects – is problematic for all parties with a significant impact upon cash flow and working capital throughout the supply chain.
"These issues have been brought into stark focus this week with Carillion going into liquidation, leaving an estimated 30,000 creditors, which are predominately small and medium-sized businesses. It is also estimated that Carillion held £800 million of retention payments on entering liquidation.
"In order to deliver the UK's ambitious infrastructure, housing and commercial needs, the way construction projects are designed, procured, delivered and operated needs to be transformed. The current business model requires change with operating margins unsustainable for the level of risk that companies are taking on."
-- Advertisement --
As well as calling for legislation to end cash retention in the industry "by no later than 2025", the organisations said this, supported by an industry-led roadmap, would "drive the cultural changes required to address the underlying issues of retention, while realising benefits for the industry, its clients and stakeholders".
According to the industry bodies, key benefits would include;
• An increase in working capital within the supply chain to support investment, productivity and growth
• Without the threat of unfair payment, there would be an incentive to improve quality of completed works on construction projects as well as increased assurance that any defects that did occur would be rectified appropriately; and
• Increased collaboration and transparency in the construction industry by ensuring that any forms of security used against defects would be appropriate and proportionate
Build UK Chief Executive Suzannah Nichol MBE said the collapse of Carillion reinforces the need for "significant change" in the construction industry.
"We urge Government to take legislative action to abolish cash retention," she said.
"The industry is ready to support this by implementing a phased approach to zero retention, in partnership with Government."
Alasdair Reisner, Chief Executive at CECA, said: "The use of improperly managed retentions by employers often has substantial impacts on SMEs further down the supply chain as these companies operate within extremely tight margins and reserves.
"Carillion's collapse has highlighted once and for all how change is needed
in our industry. As a first step, we call on Government to legislate to abolish cash retentions and work with industry to implement an agreed route map based approach to achieve this ambition."
Dr Diana Montgomery, Chief Executive at CPA, added: "The industry clearly needs a sensible, ethical and common sense approach to this issue which works more fairly and efficiently for everyone involved. Perhaps more importantly however, the issue of retention is part of a larger issue of the reform required around construction procurement and delivery, which recent events have thrown into stark relief."
(LM)
