Construction Sector: Roadmap to Zero Retentions

Lord Callanan Excerpts

Wednesday 15th December 2021 Lords Chamber

[Lord Aberdare]

To ask Her Majesty’s Government what steps they plan to take to support the implementation of Build UK’s Roadmap to Zero Retentions, seeking to eliminate cash retentions in the construction sector by 2025, further to its endorsement by the Construction Leadership Council on 9 December 2019.

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

My Lords, the Government are working in conjunction with the Construction Leadership Council to support the implementation of the Roadmap to Zero Retentions. Work is being undertaken by the business model workstream of the council. This includes building on the work of the Get It Right Initiative, to drive improvements in quality and reduce the need for retentions through the construction industry and exploring alternatives to cash retentions.

[Lord Aberdare (CB)]

My Lords, the Build UK roadmap and its endorsement by the Construction Leadership Council demonstrate a welcome degree of consensus across the sector that action is urgently needed to eliminate the pernicious practice of retentions, as well as outlining a route to doing so. The Minister’s response indicated a sort of waiting game that retentions might die out of their own accord. There is a general feeling that legislation is needed to bring an end to retentions, so I ask him: what is the plan to reach the 2025 target date, and when will legislation be introduced to achieve it?

[Lord Callanan (Con)]

I understand that the noble Lord has strong feelings on this issue; indeed, we met to discuss this a few months ago and he has previously asked Questions on it, so I know his passion on the subject. The problem is that there is no general feeling that legislation is required. Some people passionately believe in the need for primary legislation, but obviously there is some opposition as well. We continue to believe that the best way forward is for an approach that all sides can agree on to be taken forward by the Construction Leadership Council.

[Lord Stunell (LD)]

I thank the Minister for the way in which he has engaged with noble Lords who have taken an interest in this subject. I recall that he told us of the guidelines that have been issued to departments on taking out construction contracts. I ask him to spend a bit of time in the remainder of this financial year chasing up those government departments that are not yet implementing the guidelines, so that in the coming financial year every contract that is signed by a government department has this retentions clause removed.

[Lord Callanan (Con)]

The noble Lord makes a very good point. The vast majority of government departments no longer use retention clauses. The main exception to that is the Department for Education, and I continue to urge it to follow the lead of other departments in this regard.

[Lord Lennie (Lab)]

My Lords, in April, eight months ago, the Government stated:

“The Government, in conjunction with the Construction Leadership Council, is working to identify a sustainable strategy on retentions for the whole construction sector.”


Will the Minister update the House on where the strategy is? There may not be legislation, but is the strategy coming out?

[Lord Callanan (Con)]

There are a lot of different factors to take into consideration. This is a complicated area with widely differing views across the sector. In considering the abolition of this contractual practice, there would need to be the development of alternative surety products for the whole industry. That could mean the adaption of existing products, such as performance bonds, or the introduction of new products. It may also involve a range of different products. It is a complicated area, but we continue to take forward work with the Construction Leadership Council.

[Baroness Jones of Moulsecoomb (GP)]

My Lords, I regret that I was not able to come to the briefing that the Minister gave. It strikes me that this distorts all the figures that come out of the building industry, because even smaller and very trustworthy builders start to pack their quotes in case of retentions. When you look at this as part of the economy, the practice of retentions distorts the whole picture. Getting rid of retentions would allow the numbers to be better and clearer.

[Lord Callanan (Con)]

I agree with the noble Baroness that if we could achieve that, it would be a great result. One of the workstreams that the Construction Leadership Council is taking forward, as I mentioned in my Answer, is based on the Get It Right Initiative, which would see firms with a demonstrable trade record of good performance and quality products not having retentions levied on them. In my view, that is a hopeful development.

[Lord West of Spithead (Lab)]

Does this issue have any impact on the shipbuilding industry at all?

[Lord Callanan (Con)]

I am delighted to see that the noble Lord has turned up well dressed to ask such a noble question—he puts the rest of us to shame. My understanding is that the Ministry of Defence is one of the central government departments that has done much to abolish the use of retentions in its contracts.

[Lord Lennie (Lab)]

I will try again: could the Minister say whether he agrees or disagrees that retentions in the construction industry are an appropriate or proportionate mechanism for ensuring quality and fair payment?

[Lord Callanan (Con)]

I can answer that question by saying what we have done in central government in my department: we have substantially abolished them. Most government departments have now got rid of them and only the Department for Education is a laggard. We would be better to do without them, but that is not the same as moving towards a statutory ban.

[Baroness Neville-Rolfe (Con)]

My Lords, as somebody who initiated a review of retentions when on the Front Bench over five years ago, I have one simple question: does the Minister accept that the delay in dealing with retentions in the construction industry is injurious to the industry and hence to the national interest? Will it be possible to now have more rapid action?

[Lord Callanan (Con)]

As I said in response to a previous question, I agree with my noble friend that we need to try to drive some action in this area. But a statutory ban is a very blunt instrument, and it would be difficult without some alternative form of surety being put in place, so we are working with the industry to try to develop those models. My noble friend will know the issue very well from the work that she did.

[Lord Aberdare (CB)]

My Lords, the Minister mentioned the lack of consensus in this area. There is never going to be a complete consensus between one party which is withholding funds and the other party which is having them withheld. This is why action is needed by government to address the issue. I accept that the complete banning of retentions is a major step but that is why action is needed now to devise a path towards that eventual goal.

[Lord Callanan (Con)]

The noble Lord is partly right and there will always be some who will oppose it, but the Build UK Roadmap to Zero Retentions has been developed and is supported by its many clients. The construction firms and trade associations within the membership of Build UK, the Construction Products Association and the Civil Engineering Contractors Association, are supporting this initiative. There are some hopeful signs of consensus going forward.