Construction suppliers are demanding new rules to tackle a “scandalous” late payment culture that they say is undermining investment and safety in the industry and harming small companies.
Business groups representing interests from roofers to scaffolders, bricklayers to lift engineers, are supporting eight MPs, led by Peter Aldous, a Conservative, who are trying to bring in legislation that would protect cash owed to suppliers when a builder goes bust.
The move is intended to address the issue of so-called retentions, under which a portion of a construction supplier’s bill is held back, ostensibly as security in case the sub-contractor does not return to rectify defects.
Industry groups say that retentions have been abused by construction giants to smooth their own cashflow issues, with suppliers sometimes never getting their money back.
About £3 billion in cash retentions is outstanding in Britain, according to the Specialist Engineering Contractors’ Group, which represents tens of thousands of small businesses.
Most retentions sit in everyday bank accounts, with no insolvency protection. According to the Building Engineering Services Association, 44 per cent of contractors have suffered non-payment of a portion of their bills as a result of insolvency in the supply chain during the past three years.
The proposed legislation, which is being supported by 29 construction and skills groups, would force builders to hold retention money in a separate account so that it could not be used for their own cashflow purposes.
Alexi Ozioro, policy co-ordinator of the Building Engineering Services Association, said: “Retentions have been a problem for small and medium-sized construction companies for a very long time now, and the built environment has never been under more pressure to deliver faster, cheaper and to a higher standard.”
Recent business department figures show that insolvency took £700 million of working capital out of the industry in the past three years. “This equates to £4.5 million per week being lost. In order to address this crisis, action needed to be taken, as voluntary measures have had no effect so far,” Mr Ozioro said.
Rudi Klein, chief executive of the Specialist Engineering Contractors Group, believes that the issue is undermining investment in training. There also are fears that it could lead to short cuts being taken, undermining safety.
“These monies . . . legally belong to the firms from whom the monies were withheld,” Professor Klein said. “Consent to the withholding of the monies did not extend to their being used to pay off the insolvent party’s creditors. This represents a scandalous and continuing drain on the scarce resources of small and medium-sized companies in the construction industry.”
Source: The Times
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