By Legal Futures Associate dospay
With the recent news that ISG has entered administration, the spotlight has returned once more to the challenges and risks facing contractors and sub-contractors in the UK’s construction sector.
On turnover, ISG was the sixth-biggest construction company in the UK, with a turnover of around £2.2bn.
This led to the immediate loss of 2,200 jobs at ISG. In its 2022 accounts, the last filed before its administration, it owed a total of £281m to trade creditors, much of which will have been for historic retentions for work completed by its supply chain. The true number, as construction values have only been increasing since, could be much higher.
This is the largest collapse since Carillion in 2018 – the ripples of that collapse are still being felt.
The current construction retention regime is entirely unsustainable. Three times, the government has tried and failed to enact reform. It is therefore for us, the construction sector participants, to take matters into our own hands to push for reform, and to negotiate reform on a contract-by-contract basis.
The Retention Protection Pledge
The Retention Protection Pledge is simple. It is exactly this call for the reform of construction retentions. Having launched only last week, it has already gathered supporters.
The premise is simple:
For small contracts (up to £100,000), waive it. Administering a retention of that size costs more than leverage it could possibly provide, and subjects the supply chain at unnecessary risk and cashflow pressure.
For larger contracts (£100,000+), protect it. Retention Deposit Accounts are available free of charge for main contracts or sub-contracts. In main contracts, if the worst happens to an Employer, the Contractor will be protected. Likewise, for sub-contractors like those who worked for ISG, had their retentions been in escrow they would at least have not lost those.
The Retention Protection Pledge Principles
Principle 1: Waiving Retentions for Smaller Contracts (<£100,000)
We believe in waiving or not requiring retentions for contracts with a total value of up to £100,000. We agree to waive any rights to retain funds from our supply chain partners. Supply chain partners will be paid 100% of the amounts due on a month-to-month basis, without any deductions for retention.
Principle 2: Protecting Retentions for Larger Contracts (£100,000+)
For all contracts with a total value exceeding £100,000, we agree to deposit any retention monies withheld into an independent, third-party escrow or managed retention deposit scheme. Retentions will be safeguarded to ensure that they are available for release upon satisfactory completion of works, protecting supply chain partners in the event of the paying party’s insolvency.
Principle 3: Committing to Fair Practice
Transparency: We will maintain open and honest communication regarding retention practices and ensure all contractual terms relating to retention are clear and readily understandable.
Timely Release: Any retention withheld and protected will be released promptly upon the fulfilment of contractual obligations and in accordance with the agreed timelines, in any event releasing not less than 50% on practical completion.
Advocacy: We will promote the principles of this charter within the industry and encourage other organisations to adopt similar commitments.
How to support the Retention Protection Pledge
We welcome and encourage support from all construction sector participants, from Employers, developers and Government, to designers and consultants, main contractors, sub-contractors, specialists, suppliers and all of the professional services providers who, in turn, support them.
Signing up is free and fast at https://www.retentionprotectionpledge.org/ – simply provide your company information, name and website to be added to the list of supporters.
