It is hoped by many that the well-publicised Main Contractor insolvency earlier this year may prove to be a huge catalyst for change in the construction industry. One of the key focus areas is the future of retentions. A private members bill, the Construction (Retention Deposits Scheme) Bill, also known as the “Aldous bill” after Peter Aldous MP, has been picking up traction since its first reading in January 2018. At last count, over 120 MP’s had given the bill their backing. In late April, industry bodies including BESA, representing 355,000 business across the construction industry handed in a petition to 10 Downing St. The petition called for payment and retention reform. Whilst the second reading due on 27 April 2018 was postponed to 15 June 2018, the wording of the bill has now been published.
The Construction (Retention Deposit Schemes) Bill is intended to amend the Construction Act to introduce the mandatory use of a retention deposit scheme. The aim is to ring fence retention monies, enabling their release once work is completed and defects attended to. It introduces two new sections: Sections 111A and 111B. Some key points are below:
- Section 111A requires the government to provide regulations for the operation of a retention deposit scheme which is defined as “a scheme which is (i) made for the purpose of safeguarding cash retentions withheld in connection with construction contracts and facilitating the resolution of disputes arising in connection with such cash retentions and (ii) complies with regulations made under this section.”
- In terms of the type of retention deposit scheme which will be available, we understand that it will be based on the model of the current tenancy deposit protection scheme. However, the government are consulting with various industry bodies and are considering various options.
- Cash retention is defined widely as “monies which are withheld from monies which would otherwise be due under a construction contract, the effect of which is to provide the payer with security for the current and future performance by the payee of any or all of the latter’s obligations under the contract.”
- The definition of construction contract for the purposes of this section is also intended to be wider than the meaning in section 104 i.e. including any contract created to have a “similar effect to a construction contract for the purposes of withholding monies”.
- The effect of Section 111B is that there is a statutory obligation on any party holding retention monies to put them in a retention deposit scheme and if they fail to do so the clause permitting the withholding of retention monies will be invalid. There is also a mechanism for repayment of any cash retention within 7 days if the cash retention withheld is not placed in a retention deposit scheme or the payer has not notified the payee or the scheme administrator of the relevant details.
- Whilst section 111A comes into force on the day on which the Act is passed, section 111B comes into force ‘on such day as the Secretary of State may by regulations appoint’. Presumably this is to allow for the government to put in place the retention deposit schemes.
In the meantime, we wait to see the outcome of the second reading on 15 June. If it is successful it will go to committee stage for detailed review of the Bill. In parallel with this we are hoping to soon see the output from the recent government consultations on retentions and the Construction Act. Meanwhile, some, like Build UK and CECA, don’t think the retention deposit scheme goes far enough and there are calls to phase out retentions entirely by 2023. Whatever happens – the issue of retentions looks likely to be a hot topic for a while to come.
If you want to know more about the use of retentions in construction contracts, make sure you read our recent article on the subject here.