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FETA says regulatory reform vital to address cash retention concerns

Organisation adds voice to trade bodies backing new bill that will require cash retentions for building services projects to be held in an approved third-party deposit scheme

The Federation of Environmental Trade Associations (FETA) has welcomed the first reading in parliament of a new bill that would put a statutory obligation on any construction or building services group withholding cash retentions to use an approved deposit scheme.

Retentions reform has been a long-standing issue for FETA’s members due to the perceived negative financial impacts on industry, particularly for SMEs that are reliant on consistent cashflow. FETA said that regulatory change would be a vital step to move forward with addressing issues of late and lost payment of cash retentions.

The organisation said it was among 23 signatories to a letter published in the Daily Telegraph newspaper last month arguing that the current retentions scheme was negatively impacting productivity, innovation and investment in the building services industry.

Research compiled for the government by consultants Pye Tait has found that of the £220bn in turnover generated by the construction industry, £10.bn was being held in retentions. The same findings noted that £7.8bn of retentions was unpaid by the construction sector over three years, with £700m being lost in upstream insolvencies over the same period.

Pye Tait’s conclusions were published as the government last year launched a consultation on cash retentions that is closing next week. 

Efforts to introduce legislation requiring use of deposit schemes for cash retentions are separate from the government’s consultation.  However, backers of the bill, such as the Specialist Engineering Contractors’ (SEC) Group, argue that it complements the aims of the government’s consultation to ensure cashflow for completed work. 

MP Peter Aldous delivered the first reading of the Construction (Retention Deposit Schemes) Bill this week in parliament as part of an ongoing process to amend the 1996 Construction Act with a regulation outlining how monies can be withheld from contractors. A second reading of the bill, which Mr Aldous developed with BESA and the Electrical Contractors’ Association (ECA), is now scheduled for April 27. 

FETA chief executive Russel Beattie said the organisation was among a number of trade bodies working across the construction industry that fully support regulatory change.

Mr Beattie said, “Retention payments are a deeply contentious matter for many of our members and the fact this bill has received support across parliament suggests it is beginning to gain the attention it warrants.”

“FETA will continue to work alongside other trade associations to ensure the reform reaches a satisfactory conclusion for all parties. In parallel to this bill, the government currently have a consultation running on payment practices in the construction industry and we remain convinced that legislation is the only way forward as relying simply on voluntary improvements is no more likely to succeed now than it has in the past.”

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