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MPs press Small Business Minister on 'contractor abuse' in retentions debate

Building Engineering Services Association reports ‘barrage of evidence’ presented to Anna Soubry in Westminster Hall debate

MPs have called on the government to speed up its planned reforms to the ’outdated’ practice of payment retentions that cost construction small businesses more than £40m last year.

The Building Engineering Services Association (BESA) said that over 30 of its members had contacted their MPs to draw attention to the subject and that MPs in the Wesminster Hall debate had reported that thousands of sub-contractors, in particular, were being “abused” and on the brink of bankruptcy despite rising workloads across the sector.

David Simpson, MP for Upper Bann in Northern Ireland, led the debate by telling the Minister that some sub-contractors had been forced to wait up to 10 years for retention payments in the most extreme cases. He added that a retention is typically 5 per cent of the contractor’s total price and often outweighs their entire profit margin leaving many small businesses close to financial collapse.

Mr Esterson, who is MP for Sefton Central in Liverpool, added that cash flow was absolutely vital to sub-contractors “because of the low levels of capitalisation in construction supply chains”. He said banks would not lend to SMEs in the sector because large parts of their working capital are retention monies and, by definition, unsecured.

Ms Soubry said they were “banging on an open door”, but urged them not to seek an amendment to the Enterprise Bill and to wait for the current governmental review of retentions, chaired by Crossrail chief executive Andrew Wolstenholme, to report at the end of this year. She accepted the need for reform, but said there would still have to be some form of retentions in order to make sure “snagging” works were carried out to the client’s satisfaction.

Anti-retentions campaigner Debbie Abrahams, MP for Oldham East and Saddleworth, said it was “hugely disappointing” that after acknowledging the problem over 10 years ago the government had still not legislated on retentions. She congratulated the Specialist Engineering Contractors’ (SEC) Group for its relentless campaigning on all aspects of unfair payment to sub-contractors and for being “the voice of this issue”.
Mr Simpson added that it was an issue that went “right to the core of small business” and should be seen as a priority by a “pro-business government”.

Martin Burton, chairman of the BESA Commercial and Contractual Committee, who sits on the SEC Group board and Build UK Payment Leadership Group, said there was a fundamental and structural conflict of interest in the retentions system.

He said: “The government has acknowledged the inherent problem that the party holding the retention monies is also arbiter over whether a contractual problem has arisen. This allows them to access those funds to off-set losses incurred against the purported problem.”
The BESA chief executive Paul McLaughlin added that retentions had their place “so long as people settle up in the end…it is the unsecured part of retentions that creates problems for contractors because the money can often disappear in a puff of accountants’ smoke”.
He said the BESA, which is a member of the SEC Group, had made significant headway on the issue and called for retention payments to be placed ‘in trust’ so sub-contractors would be protected in the event of an insolvency further up the supply chain.

The mood from Westminster Hall was continued into Parliament itself by SNP MP Hannah Bardell during the second readling of the Enterprise Act on February 2. Ms Bardell urged ministers to adopt the project bank account concept piloted by the Scottish government.

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