Construction businesses “suffering Victorian payment system”

Construction professionals are still suffering the “scourge” of a Victorian era payment system that was brought in to stop cowboy railway builders doing a runner, the Managing Director of electrical trade association SELECT has told national radio.

Speaking on the Clive Holland Show on Fix Radio this week, Alan Wilson said it was time to do away with the outdated system of retentions, in which money is often unfairly held back from sub-contractors under the premise of completing work satisfactorily.

And he told the UK’s radio station for tradespeople that SELECT would continue to campaign for the system to be replaced and help remove uncertainty for business.

Mr Wilson said: “Retention is a very outdated model, set up in the Victorian era and the dawn of the railways when unscrupulous contractors were building routes. When they turned a corner that went round a hill, they suddenly stopped building the railway and scooted off with the cash that they’d been paid. So that’s where it started from and yet 150 to 200 years later, we’ve still got it.

“In this day and age, if you want to have a proper relationship with someone in business, is it really the right thing to say: Well, I’ve got your price. I’m going to get you to do all this work for me, but I don’t trust you enough to pay you all that money so I’m going to keep it back just in case you don’t do things right?”

Mr Wilson said clients need to have proper relationships with contractors, with good examples including integrated project alliances, where project owners and contractors sign up to a single contract, with conditions that stipulate and incentivise shared responsibility.

He said: “Clients need to be grown up and to trust contractors; they need to engage properly with them and set up proper agreements. And hopefully, that will see away with the scourge of retentions.”

Speaking on the show on Tuesday 1 February, Mr Wilson also advised contractors to keep on top of their debts, adding: “If you’re not paid one month, then you need to make sure the client pays you for that before you progress with additional works.

“Staged payments are definitely a good way forward. Get paid for the work you’ve done, get that money in your bank account. Make sure you put bills in on time. Make sure your paperwork’s up to date – keep proper records.”

On late payment, Mr Wilson said payment terms – when and how often payment will be made – should be the first thing a contractor looks at before they price a contract.

“Look at the payment conditions first in any contract and make sure you follow up everything in writing,” he said. “If someone asks you to do additional work on site, note it down in a triplicate pad and ask the client to sign it.”

SELECT has been pressing the Scottish Government to introduce a system where retention monies are put into a trust in the short term and do away with the system completely in the longer term.

The Scottish Government says its ambition is to see a “significant reduction” in the use of retentions in construction contracts, with alternative mechanisms in place to ensure “high quality delivery and contract compliance”.

In January 2021, it set up a short life working group on cash retention under construction contracts to consider options, including an outright ban. The group’s recommendations, published in July 2021, favour a custodial model which holds retention payments in an independently run, protected deposit scheme for the period of the construction contract and delivers automatic payment.

The group also recommended that, by the end of January 2022, the Scottish Government should publish a retention best practice policy note for contracting organisations.  Its requirements would include that organisations withholding cash retentions should not repay late or partially, without “full and clearly articulated” justification.