SELECT calls for ring-fenced accounts in response to retention consultation

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SELECT, the campaigning body for the electrotechnical industry in Scotland, has added its voice to the Scottish Government’s consultation on the use of cash retentions in construction.

In a detailed response on the practice, the trade association has firmly stated its long-held view that Holyrood should introduce a statutory obligation to place cash retentions in a ring-fenced retention deposit scheme.

It has also pointed out to its 1,250 member businesses that the consultation closes on 25 March 2020, and is encouraging all firms in Scotland’s construction industry to follow its lead and take part in the important exercise.

Cash retentions are deducted from due payments, ostensibly as security in case a firm fails to return to remedy non-compliant work. In practice, the monies – which belong to the firms from whom they have been withheld – are often used to bolster the cashflow of clients and Tier 1 contractors.

In its response to the consultation, SELECT said, “We must aim to bring all value contracts within scope of our proposed deposit scheme so that small businesses which bear the brunt of retentions abuse are protected. A suggestion to place a cap on the value of contracts subject to the scheme, or any other type of cap, could exclude the very firms that require most protection.”

In its response, SELECT listed the benefits of a ring-fenced scheme backed by adjudication:

  • Monies ring-fenced in the scheme can provide collateral for borrowing, thus increasing liquidity for SMEs
  • Disputes over the release of cash retentions will be resolved quickly, since neither party has control over the monies 
  • Since retention monies will not be available to be used and abused, the demand for cash retentions is likely to be reduced, thus placing a greater focus on selecting competent firms. 

The association added, “In essence, we must change procurement strategies so that the supply chain is involved in the design process from the outset to reduce the incidence of defects.

“Furthermore, firms should be selected on their demonstration of competence rather than on their ability to offer lowest price which often leads to defects. Until the procurement process is altered, these issues will remain in the industry.”

Working in partnership with the Specialist Engineering Contractors’ (SEC) Group, SELECT has been lobbying MSPs for support for legislation on retentions, which it claims are particularly harmful to smaller companies.

SELECT managing director Alan Wilson, who is also national executive officer of SEC Group Scotland, said, “Most of the criticisms of the current retention system would be addressed by placing cash retentions in a protected and separate location. 

“This should be accompanied by a fast-track and inexpensive adjudication procedure to resolve disputes over the release of retentions from the scheme. Taken together, these measures would substantially reduce the incidence of late and non-payment of retentions.”