The ECA, the Electrical Contractors Association, claimed the move as a victory, after a long campaign. Rob Driscoll, director of legal and policy, warned that the struggle continues. 鈥淚ndustry must come together and work to ensure there can be no back-door loopholes to get round the ban on retentions.鈥�
NFRC (National Federation of Roofing Contractors)聽CEO James Talman joined in the celebration, saying, "This outcome is one聽our industry has been聽campaigning for聽years聽to聽achieve. For too long, specialist contractors聽have been forced to聽operate聽under a system that allowed larger firms to withhold their money, delay payment, and use their cash as free working capital.聽Today, the Government has shown that it has listened,聽and we could not be more pleased."聽
The proposed change has been under formal consideration through a public consultation for a year, and won鈥檛 come into affect immediately. Roan Hay, a debt collector working with SMEs, warned his LinkedIn followers not to hold their breath. 鈥淭his won鈥檛 happen overnight. This will take years to properly implement.鈥�
David Crosthwaite, chief economist at BCIS, emphasised the need for continued consultation, saying, 鈥淩etentions have traditionally played a role in managing defects liability and quality assurance, so any changes will need to ensure that appropriate mechanisms remain in place to maintain delivery standards.聽
鈥淭here may also be scope to strengthen payment security further through mechanisms such as project bank accounts, which can support more reliable and timely distribution of funds across supply chains.鈥�
From law firm Kennedy, Amanda Hanmore, partner and Scott McKinnell, legal director, suggested some of the ways retentions could be replaced. 鈥淚t may provoke disputes in relation to payment practices and what can constitute withholding of retentions while new compliant practices become established.
鈥淚t may also increase the costs of some projects as a result of alternative payment security mechanisms such as bonds being required or result in employers adjusting payment schedules to provide for payments more loaded towards the end of a project. The new measures are also likely to lead to radical changes in standard form construction contracts.鈥�
Daniel Cashmore, a partner in Osborne Clarke's construction and engineering disputes team, said "The ban will come as a shock to many despite the Government saying the consultation responses showed that respondents were in favour of a ban. [It is] the more extreme of the two options set out in the consultation launched last year.聽
鈥淭he ban will grab headlines as the government is seen to be supporting small businesses. The reality is that retention payments are used as an important safeguard against SME insolvency as well as a commercial tool to ensure works are completed and issues or problems are rectified promptly and without the need for legal proceedings. A ban on retention payments may lead to more disputes as large organisations are left having to seek recourse for incomplete or defective works via the courts or adjudication, which they would have recovered via the retention pot.鈥�
He too warned new approaches would be needed. "Large organisations are likely still going to be unwilling to take such risks and so will want to consider alternatives such as switching to payment on completion of pre-agreed 'milestones', the adoption of project bank accounts or requiring contractors to procure performance bonds, which can be expensive."