Enterprise Bill [HL]

Debate between Earl of Kinnoull and Lord Cope of Berkeley

Wednesday 28th October 2015 Grand Committee

[Lord Cope of Berkeley (Con)]

My Lords, I too am sympathetic to the idea of a review of this subject. I do not go along entirely with the precise wording of the amendment. The noble Lord has just identified the final subsection of the proposed new clause with its requirement for the Secretary of State to implement in regulations whatever is suggested in the review. I do not really think that that would work, nor would it be satisfactory from Parliament’s point of view, as we discovered on Monday. Nevertheless, the idea of a review is important. Quite a lot has already been said about the problems in this area. I think of it in terms of, for example, bricklayers. Many bricklaying companies are quite small concerns doing a lot of specialist work. If one of them is involved in a large project, which may be part of a major commercial project or an estate of houses, its work is done at quite an early stage.

In some cases, the work is organised by not very substantial firms—the developers do not necessarily have huge reserves in comparison with the size of the projects. Also, not all housing estates that are built sell readily, which can cause great problems for the developers. However, they should not be able to take that out on the bricklayers who did their work several years before, or for that matter on the fellows who laid the drains, as that work has to be done at the start and it has to be examined at the start. It is no good complaining that the drains were not properly laid when everything else has been done; that is the wrong time to find out. The clerk of works and the building inspectors should discover that at a much earlier stage.

The suggested purpose of retention—to make sure that the work has been properly done—therefore has less force than might be supposed in a case of that kind. If the bricklayers are not being paid for maybe five years after they have done their work, that is an extremely difficult situation to be in. The subcontracting nature of the construction industry, which adds great value in flexibility for the industry—that is why the system has grown up as it has—is an important factor in considering how retention works. I am in favour of this proposal being examined to see what can be done to improve the situation. As has been said, some contractors manage without it, but the public sector on the whole does not. Perhaps this requires not law but instructions from the Government concerning the public sector’s attitude towards contracts of this kind.

[The Earl of Kinnoull (CB)]

My Lords, I too support the amendment in the name of the noble Lord, Lord Aberdare. I should declare my interests, and not only those on the register of the House—until earlier this year, I had been for 10 years or so a director of the construction bond insurance companies in the Hiscox group, as well as having been responsible for the bit of Hiscox which dealt with United Kingdom household insurances and which was therefore rebuilding the houses of our clients.

I congratulate the noble Lord on the thinking behind the amendment. This is an interestingly complex area. We have heard about the problem of bad behaviour, but the other problem is the failure of the various parties concerned to understand the credit risks involved in construction contracts. In the JCT standard construction contracts, there are provisions for payments of the retention moneys into trust accounts, which I suspect are never really honoured. That is a big area which should be looked at.

A lot of the business that the construction bond area of Hiscox dealt in was Irish. Ireland had a particularly severe construction dip following the financial crisis and there was quite a bit of evidence of what I would call the domino effect. A head contractor would get into financial difficulties and would drag down a lot of smaller contractors and, because trust accounts were not in place, the smaller contractors lost out. Given the Government’s theme of trying to give every help to the small and the brave, I believe that this could be dealt with. It would not be expensive and could easily benefit small businesses quite a bit.