Cash retention under construction contracts: consultation analysis

Foreword

It has been recognised that the circumstances arising from the COVID 19 pandemic has hastened the change in some elements of the way we work. It has stimulated unprecedented levels of collaboration between government and industry which we now seek to build on. 

The construction industry touches every part of Scotland's economy and is vital to our future prosperity. With a turnover of around £19 billion per annum it provides £7.8 billion Gross Value Added to the Scottish economy and employs 143,000 people in over 50,000 enterprises.

Improvements to the sector's productivity and profitability remain key to continuing to address Scotland's construction needs and to allow the sector to invest in its people, innovation, skills and the new technology required to take advantage of the emerging opportunities in areas such as retrofit, offsite construction and in the major infrastructure opportunities emerging within the wider UK and internationally.

However, the industry faces a number of challenges, including ensuring prompt and fair payment to firms within the supply chain. Cash retention is one example of a payment practice vulnerable to both insolvency and abuse.

Unjustified late and non-payment of retentions are regularly raised by parts of the industry as being a barrier to growth within the construction sector. These practices can cause problems, particularly for small business owners, who rely on a steady cash flow. We are committed to working with the sector to improve payment practices and that is why we published a consultation seeking views on the practice of cash retention under construction contracts. I am grateful to all those who took time to respond to the consultation and who participated in wider discussions.

Responses were received from a range of organisations and these clearly illustrate the breadth of views within the sector on the practice of retention, and the possible policy solutions to addressing the issues associated with their use. These range from maintaining the current approach; to protecting retentions in a deposit scheme; and to introducing a ban on cash retentions. This document contains a summary of the responses during the open consultation period. It provides a useful base to consider the impact of policy options and highlights that further work and evaluation is required. We will continue to work with industry to build consensus for a policy option that addresses the problem of unjustified and late payment of cash retentions. We note that  the UK Government has taken time to consider its consultation on cash retention and this supports the evidence that this will not be easy to resolve.