Small and Medium-sized Housebuilders

Lord Aberdare Excerpts

Wednesday 12th July 2023 Lords Chamber

[Baroness Scott of Bybrook (Con)]

I think we need both types. We need the large developers building large numbers of houses; we also need to support our SMEs across this country. My noble friend is absolutely right. That is why we see quite a lot in the LUR Bill about beautiful homes for people in this country. Therefore, local authorities will in future have to produce design codes for their areas.

[Lord Aberdare (CB)]

My Lords, one way of helping small and medium-sized housebuilders would be finally to end the pernicious practice of retentions. Many small construction firms, often with very low profit margins, are crippled by having up to 5% of the funds owed to them withheld, and sometimes never paid at all. Roofing firms alone are currently owned £300 million. This prevents them investing in growth through skills or technology, and may even force them into insolvency. There were over 4,000 construction insolvencies in the year to March 2023. What specific progress are the Government making to deliver their long-standing goal of ending retentions by 2025, and specifically in removing retentions from all public contracts?

Building Safety Bill

Lord Aberdare Excerpts

Lords Hansard - Part 1 & Report stage
Tuesday 29th March 2022 Lords Chamber

[Lord Bethell (Con)]

My Lords, I support Amendment 2. It is a great privilege to follow the noble Lord, Lord Crisp; he put the arguments for the amendment incredibly well so I will keep my comments as brief as I can.

As Health Minister during the pandemic, I realised how unhealthy our country is. Time and again, one saw from the front line of Covid—through the ICUs and test and trace teams—reports of how connected the spread of the disease was to the housing conditions of the country and how the comorbidities of those arriving in our ICUs were often connected to the environment in which they lived. Housing and illness are inextricably linked; I came face to face with that during the pandemic.

The pandemic led to a huge amount of misery through loss of life and severe disease. It also hit the country’s economy extremely hard; there is no doubt that we had longer and harder lockdowns as a result of the fact that our country is so poorly. However, we cannot ask the NHS and our healthcare system on their own to be responsible for the improvement of our national health. There is a role to be played by education, sports, scientists, civic society—all the parts of our country, including and especially housing. That is why I support the healthy homes principle from the TCPA.

This issue is recognised in the levelling-up White Paper, to which the noble Lord, Lord Crisp, referred. However, it is not clearly recognised in the Bill. The priority that housing should support health and well-being should be fundamental to the underpinnings of this Bill. That is the purpose of this amendment, which is why I put my name to it. I ask the Minister to put on record a commitment that the department will look at ways to augment the Bill’s focus to bear on the health and well-being aspects of housing regulation, and to meet the noble Lord, Lord Crisp, myself and others to discuss how this might be done.

[Lord Aberdare (CB)]

My Lords, having had the very last amendment debated in Committee, I now mount my retentions hobby-horse once again, but riding on a slightly different course and in the first group on Report. My Amendment 7 would give the building safety regulator a duty to keep possible safety risks arising from contractual arrangements, including payment conditions such as retentions, under review in fulfilling his or her role of improving building safety and standards.

Procurement and contractual arrangements are crucial in setting the tone for relationships between different-level contractors in a building or building maintenance project. They can determine whether those relationships are adversarial—seeking advantage for one side against the other and looking to minimise cost—or collaborative, mutually beneficial and focused on adding value and maximising safety.

Yesterday, I attended a webinar hosted by King’s College London to launch the Guidance on Collaborative Procurement for Design and Construction to Support Building Safety, produced by the Department for Levelling Up, Housing and Communities with the support of its procurement advisory group. To quote the invitation,

“preventing another Grenfell Tower disaster depends on a major overhaul of construction procurement practices, breaking away from the adversarial ‘race to the bottom’ through which low prices undermine safety and quality.”

The first speaker was none other than Dame Judith Hackitt, who gave her strong support to the guidance. She emphasised that culture change in construction has to start at the very beginning of projects, and that contractual arrangements are crucial in setting the tone for relationships between different-level contractors. She also restated her view that retention policies are totally inconsistent with collaborative procurement and do not encourage a focus on building safety. Contractors assume that they will not receive the funds withheld and look for other ways to reduce costs, through cutting investment in training and quality or using substandard materials. I only wish that Dame Judith could be speaking on my amendment.

Building Safety Bill

Lord Aberdare Excerpts

Committee stage
Wednesday 2nd March 2022 Grand Committee

Moved by

[Lord Aberdare]

136A: After Clause 135, insert the following new Clause—
“Review of safety impact of retention
(1) Within 12 months of the passing of this Act the Secretary of State must publish a review of the impact on building standards and safety of retention of payments due to sub-contractors by building contractors.(2) Matters which the review may consider include, but are not limited to—(a) cash flow difficulties sustained by sub-contractors as a result of retention,(b) ability of sub-contractors, as a result of retention, to afford materials of a suitable quality for future contracts,(c) ability of sub-contractors, as a result of retention, to recruit sufficiently qualified staff, and(d) other factors which may cause sub-contractors to make savings on building standards and safety because of retention.”

[Lord Aberdare (CB)]

My Lords, it has been interesting and instructive for a non-expert to listen to the debate in this rather impressive Grand Committee while waiting for my sole amendment to be reached as the very last group.

Amendment 136A is a probing amendment that seeks to encourage the Government to take some long-overdue action to tackle the pernicious practice of retentions in the construction sector. I start by thanking, in his absence, the noble Lord, Lord Blencathra. He crafted this amendment in a form deemed to be in scope and then allowed my name to appear above his. I am sorry to hear that, as I gather, he has fallen prey to Covid, but I wish him a speedy recovery and I shall certainly miss his powerful support today. I am also grateful to the Minister for sparing time last week to meet me and David Frise, representing the engineering services alliance, Actuate UK, whose members are among the firms most impacted by retentions.

I shall make just three points relating to the amendment. First, retentions are a cancer affecting the construction industry, which, as noted in the Hackitt report,

“can drive poor behaviours, by putting financial strain into the supply chain”.

These can damage both quality and safety; for example, by causing subcontractors to use cheaper, substandard or unsuitable materials or to cut corners on quality in other ways. In some cases they may withdraw from contracts or even be forced out of business altogether, causing the “golden thread” which is such an important part of the thinking behind the Bill to fray, if not snap.

Retentions poison relationships between subcontractors and contractors, creating a fundamentally adversarial relationship rather than a far more productive collaborative partnership. They deprive smaller firms of funds for investment in skills, technology, growth and productivity, while causing them to waste substantial time and effort chasing payments which are due to them, but which in some cases are never paid at all—notably when the business owing them goes bust, as in the case of Carillion. Retentions are not even a particularly effective way of preventing or remedying defects; the sector has been developing much better approaches, such as modern methods of construction and the Get It Right Initiative. I salute the Minister’s evident commitment to improving the quality and culture of the construction sector, but that aim will never be achieved while unregulated retentions persist.

My second point relates to the need for legislation. There is a high degree of consensus across the sector that something needs to be done about retentions, and there is even a target date, endorsed by the Construction Leadership Council, for there to be zero retentions by 2025. That is a laudable goal, but, as Ministers regularly point out, there is no industry consensus about how to reach it. Of course there is no consensus between firms that benefit from withholding retentions, often using them to artificially boost their own working capital, and those who are deprived of funds due to them. So we have a stalemate that can only be resolved by government through legislation, whether primary or secondary.

--- Later in debate ---

[Lord Greenhalgh (Con)]

That is a really good way to end the debate. I will have to write to the noble Lord, because I do not know a lot about the Department for Education other that it is on the street near Marsham Street. I have been there maybe two or three times when I was a council leader. I will write to the noble Lord, but I think it is probably something, as he would well know, that I am not in a position to answer at the Dispatch Box right at this minute.

At this point, I am allowed to sit down. I have avoided a Latin phrase for the whole four hours of this debate, but the noble Lord, Lord Kennedy of Southwark, has provoked me: he responded to me saying that I would not resort to Latin by saying, “Id gratum esset”. I knew enough Latin to know that that means, “It would be appreciated”. Well, I have appreciated this debate, and I look forward to moving on to Report and taking this landlord Bill through this House.

[Lord Aberdare (CB)]

My Lords, I thank the Minister for that response, which at least confirmed my prophetic abilities and had quite a bit of encouragement. I confirm that we are working on a letter to him along the lines that he described, and we will get that to him in due course—that is a bit pessimistic; we should say “shortly”. I thank him for the other comments that he has made, which I will study and act upon.

I was absolutely delighted that the noble Baroness, Lady Neville-Rolfe, was able to contribute to the debate. As she said, she was the Minister responsible when I first accidently got involved with retentions in 2015. For a glorious moment, I thought that she might prove to be the dragon-slayer, but I am delighted that she continues to support the cause. The noble Lord, Lord Stunell, made a very important point about investment in training as well as the fact that government itself is not doing all that it could to bring this practice to an end.

As always, I depend heavily on the vast expertise of my noble friend Lord Lytton, whom I thank particularly for focusing on the impact on SMEs. The noble Baroness, Lady Hayman of Ullock, also did so, again pointing out the issue of cash flow and its importance. Fortunately, my SME was never in the construction sector, so that is one problem that we did not have, although we certainly had plenty of cash-flow problems. Of course, I also thank the Minister.

Fixing this issue will be a key part of achieving the goal that the Minister is setting out to achieve: a productive, high-quality, collaborative, innovative, forward-looking and, above all, safe construction sector, providing the sorts of homes and other buildings that we can be truly proud of. I am not convinced that we should not come back to this issue on Report, but, for now, I beg leave to withdraw the amendment.

Amendment 136A withdrawn.

Building Safety Bill

Lord Aberdare Excerpts

2nd reading
Wednesday 2nd February 2022 Lords Chamber

[Lord Aberdare (CB)]

My Lords, I welcome the Building Safety Bill, and its provisions to implement the recommendations of the Hackitt report following the Grenfell Tower tragedy. In particular, I was glad to hear the ambitions stated by the Minister that it should represent a complete overhaul of the culture of the construction sector. In so doing, it presents an opportunity to tackle issues that have bedevilled the sector for many years, with a damaging effect on safety and quality. Many of these affect smaller construction firms and their relationships with the larger contractors for whom they work, as well as their ability to invest in improving their skills, quality, productivity and, of course, safety. I shall focus specifically on the issue of cash retentions.

The Hackitt report states:

“Payment terms within contracts (for example, retentions) can drive poor behaviours, by putting financial strain into the supply chain. For example non-payment of invoices and consequent cash flow issues can cause subcontractors to substitute materials purely on price rather than value for money or suitability for purpose.”


There is broad consensus in the sector that action is needed on retentions, and that this requires legislation. The Government have indeed been exploring the options and have conducted a number of reviews and consultations over the years. But their insistence on seeking

“industry-led solutions, rather than further regulation”—[Official Report, Commons, Building Safety Bill Committee, 26/10/21; col. 455.]

to quote the current Construction Minister, Christopher Pincher, during Committee in the other place, has resulted in stalemate. With the industry inevitably divided between the beneficiaries and victims of retentions, this makes consensus unrealistic, if not impossible.

There have been some welcome steps forward. The snappily titled Guidance on Collaborative Procurement for Design and Construction to Support Building Safety, produced by the procurement advisory group set up by the Minister’s own department and issued just last month, reiterates the Hackitt report finding. It states:

“The use of cash retentions can also interfere with cashflow and can undermine the principles on which collaborative relationships are based. Arguably, any collaborative relationship should exclude the use of cash retentions. If exceptional circumstances require a retention, then it should be held in an account ring-fenced by a trust arrangement.”


I say amen to that, but it will not happen without government action. Ministers regularly give assurances that they recognise the importance of the issue. To quote Christopher Pincher again:

“I also recognise—I think we all do—the argument that poor, adversarial practices can lead to unsafe, low-quality building safety outcomes, as well as poor value for money.”—[Official Report, Commons, Building Safety Bill Committee, 26/10/21; col. 454.]


There is work going on in other government departments, notably BEIS, including through the Construction Leadership Council, which it co-chairs with industry, and which has a business models work- stream looking at how to eliminate retentions. The CLC has endorsed the road map produced by Build UK which aims for an end to retentions by 2025, but the road map on its own will not bring this about.

There are other steps that the Government could take. It is disappointing that there is no reference to discouraging retentions in the government-sponsored The Construction Playbook that sets out much positive guidance on procurement. It is hardly helpful that some departments, notably the Department for Education, continue to use retentions. Perhaps the Minister could say whether we can expect any progress in those areas.

We have seemingly endless reports, advisory groups, workstreams, road maps, guidance and good practice models, but without the essential legislative underpinning it seems unclear how the Hackitt report’s warning that poor payment culture leads to poor and unsafe buildings will be addressed. Meanwhile, retentions will continue to impact safety and quality.

I would welcome a clear indication from the Minister about which option the Government now favour: an outright ban on retentions, a trust arrangement such as a retention deposit scheme or some combination of both, and how they see any such approach being implemented, given the need for Government to give a lead. After all these years of reviews and consultations, a clear direction and plan are needed if the aspiration of resolving retentions by 2025 is to be met, so that smaller construction businesses, such as those represented by Actuate UK and previously by the Specialist Engineering Contractors’ Group, can rely on receiving funds due to them and are no longer hamstrung in their ability to invest in the training, skills and technology that are essential to ensuring safety.

I hope the Minister will say something in his response about how the specific concerns expressed in the Hackitt report about the impact of poor payment practices such as retentions on safety and quality will be addressed by the Bill’s new regulatory regime, and indeed how his department will ensure that the guidance provided by its procurement advisory group will be implemented.

This Bill will be—or should be—crucial in changing the culture of the construction sector in relation to safety and quality. Perhaps the Minister will tell us why taking long-overdue action to mitigate the impact of retentions on safety should not be included in it as one of the unsafe industry practices that the Bill seeks to address.