Cash retentions – the withholding of a percentage of payment on construction work until it is completed free of defects – is intended to provide security to clients that any defects will be rectified appropriately.
However they can be problematic for all parties in the supply chain, and retention bonds on larger projects are becoming more frequent.
As a member of Build UK, the NAS supports its Roadmap to Zero Retentions initiative, which aims to help the move to zero cash retentions in the construction industry by no later than 2025.
The Roadmap is supported by the Construction Leadership Council, and has a number of intended outcomes including:
- improved quality of completed works on construction projects with defects rectified appropriately (without threats of payment)
- increased collaboration and transparency
- Government recognition and support
- and ultimately, industry-wide adoption and implementation of the roadmap to achieve widescale change.
To help support the gradual move towards zero retentions, Build UK published the “Minimum Standards on Retentions – Drafting for JCT and NEC Contracts” in July 2019. By implementing minimum standards within contracts, members can help to reduce the challenges associated with the existing use of cash retentions.
The guide details the drafting amendments that are required to the JCT Design & Build (D&B) 2016 Contract and Sub-Contract and the NEC4 Engineering and Construction Contract (ECC) and Subcontract (ECS) to give effect to the minimum standards.
One of the key things to note from the Policy section is that retention percentages should be reduced to 1.5% (reducing further to 1% from 2021) from the current standard position of 3% under the JCT D&B Contract and the current example entry (NEC4 User Guide) of 3%.
As per the guide, this is because retention should only be withheld when needed and 1.5% is generally considered to be the average market level as at practical completion, noting that current levels of retention are not sustainable, particularly for lower tier contractors.
As always, the NAS is here to support its members and be the voice of the shopfitting, fit-out and interior contracting sector. If cash retentions are affecting you and your business, then do get in touch with the team, by emailing firstname.lastname@example.org to share your thoughts.