Retention Reporting Regs are a Good Start but Government Must do More says NFRC

TODAY, changes to the Reporting on Payment Practices and Performance Regulations come into force.

The National Federation of Roofing Contractors has long been advocating for these changes and they are being welcomed by CEO James Talman.

“We welcome these reforms, but they are long overdue. Retentions remain outdated, hampering growth and primarily benefitting those who exploit agreed upon terms.”

Retention Reporting

Retention clauses allow employers to withhold a portion of a contract’s value (otherwise owed to the supplier) until certain conditions are met.

Larger businesses using these clauses now face new reporting requirements. The new rules state they must publicly disclose key details of their payment practices, including:

• Whether retention clauses are used in all construction contracts or only in specific situations.
• Any minimum contract value below which retention clauses do not apply.
• Standard retention rate if one is applied.
• Whether the company imposes the same or a less onerous retention clause on its suppliers than it faces from its own clients.
• Process for releasing retentions, describing how and when withheld funds are paid back.
• The proportion of retention withheld from the company by its clients compared with what the company itself withholds from suppliers.
• The proportion of retention the company withholds from its suppliers relative to the total payments made to suppliers.

“Despite new reporting requirements, NFRC remains concerned that retention clauses will continue to limit growth and stability within construction,” comments James Talman.

“Reporting procedures do not address the fundamental problem with retentions, which are contrary to common law and unfairly restrict cash flow for smaller companies that often do not have the resources to challenge retention disputes,” he adds.

Lost Retentions

Additionally, retention funds will remain be potentially lost if a company goes into insolvency, which remains common across construction. A recent high-profile example is the collapse of ISG, which resulted in over 16 NFRC members suffering significant losses from unpaid retentions.

An NFRC business that lost £127,000 in retentions due to ISG’s collapse asked, “How has the supply chain been let down so badly?”

Another smaller NFRC member, which lost £7,000 in retentions commented, “This again underlines the unfairness of the retention system on sub-contractors – not only are we made to wait and battle for retention payments, but they are also often lost altogether due to problems out of our control.”

Retentions in Roofing

Retentions are especially redundant in roofing. This is because manufacture and workmanship-backed guarantees from legitimate operators vastly exceed the standard two-year defect liability period in retention clauses.

Notably, these guarantees only come into force on sign off the works. Manufacturer guarantees typically require full payment from the roofing contractor before being effective – while the contractor receives part payment from the client.

End of Retentions

NFRC is calling for the abolition of retentions as outlined in the Construction (Retentions Abolition) Bill, introduced in 2021.

NFRC is urging action to ensure that retention clauses are considered within the upcoming consultation on further legislative measures around payment practices. The Government must also lead the way with responsible public procurement, it says.

“The Government must take action to reform retentions after the consultation on payment practices. Abolishing retentions is an essential move the government can take to show it is serious about promoting growth within construction,” said James Talman.

>> Read more about retentions in the news