Construction Sector: Cash Retentions

Debate between Lord Offord of Garvel and Lord Stunell

Monday 11th December 2023 Lords Chamber

[Lord Offord of Garvel (Con)]

I thank the noble Lord for that contribution. The Government understand well that the practice of cash retention can create problems in the supply chain, due to late and non-payment. We are committed to improving payment practices, but we have to work with the construction industry in this. The prompt payment and cash flow review report was just published on 22 November, and a key measure includes extending and amending the Reporting on Payment Practices and Performance Regulations, basically to increase transparency in this vital area to allow large businesses to provide data to the smaller companies to see how retention payments are working. We have to work with the construction sector in this.

The Construction Leadership Council has identified some solutions to mitigate cash retention payments. Our long-term aim is to remove the need for retentions altogether and, as I said, we are supporting the Get It Right Initiative and Cranfield University to reduce the rate of defects within the buildings commissioned across the public and private sector. The aim is to establish a quality metric as a viable alternative to the withholding of cash retentions as a form of insurance against defects. There is a lot going on. We are working with the industry and a lot of consideration has been given to this matter, but, ultimately, the construction industry itself needs to come to a consensus on how to improve this area.

[Lord Stunell (LD)]

My Lords, the Minister has just said that the industry needs to come to a consensus. What he is asking for is the greedy lions to sit down with the defenceless lambs and decide what menu is going to be eaten. The reality is that the upper-tier contractors have not just the whip hand but the bank balance. He will know that many of them have a business model that functions only because they retain retentions to which they are not legally entitled. Will he now introduce a simple measure to put the retention money that is levied into an escrow account so that it cannot be used and cannot incentivise upper-tier contractors to use it to fund their business model?