What's Happening?
The UK construction industry is currently engaged in a debate over the future of retentions as the government concludes its consultation on late payments. The consultation is part of Labour's initiative
to implement the toughest late payment laws in the G7, addressing the economic impact of late payments, which cost the economy £11 billion annually. Industry bodies have expressed differing opinions on the proposed reforms, which include either an outright ban on retentions or new requirements for funds to be held in protected accounts. While Build UK supports a full ban, other organizations like the Construction Industry Council and the Electrical Contractors Association suggest a protected-account model as a compromise. Concerns have been raised about potential unintended consequences, such as increased reliance on project bank accounts.
Why It's Important?
The reform of retentions is crucial for the construction industry, as it directly affects payment practices and financial stability for small and medium-sized enterprises (SMEs). Late payments contribute to business closures, impacting economic growth and employment. The proposed reforms aim to hold large firms accountable and support SMEs, potentially leading to improved payment practices and higher quality standards. However, the debate highlights the complexity of implementing such reforms, with concerns about new payment structures and investment risks. The outcome of this consultation could set a precedent for other industries facing similar challenges, influencing broader economic policies and business practices.
What's Next?
The government will review the feedback from industry bodies and decide on the best course of action for retentions reform. This may involve legislative changes to enforce new payment practices and protect SMEs. Industry groups are expected to continue lobbying for their preferred outcomes, potentially influencing the final decision. The Construction Leadership Council plans to engage with ministers once the sector's position becomes clearer, indicating ongoing discussions and potential adjustments to the proposed reforms. The implementation of these reforms could lead to significant changes in the construction industry's financial landscape, affecting stakeholders across the supply chain.
