Home Contractor's Corner An update on cash retentions

An update on cash retentions

James Talman (above), NFRC CEO, talks through the progress being made around cash retentions and poor payment practices…

When Matt Downs, the Editor of Total Contractor, asked if we could give any updates on guidance around dealing with poor payment practices and retentions, I checked back through previous Total Contractor editions which covered the NFRC’s concerted push on retentions in last August’s edition, and the challenge regarding poor payment practices looking at the year ahead in the February 2024 edition.

Above: MP Andrew Lewer (left) with Kevin Hollinrake MP, Minister of State in the Department for Business and Trade.

So, let us start with retentions, which readers may know is the single biggest issue that NFRC Members would like to see eradicated. Since our event at the House of Commons last year we have had several meetings with supportive MPs and Peers regarding the abolishment of retentions. We have continued to provide evidence through our member surveys of the issue’s debilitating impact. This has included a meeting in January between our supporting MP Andrew Lewer MBE, and Minister Kevin Hollinrake MP (then Under Secretary of State, now Minister of State in the Department for Business and Trade), amid the Minister’s busy schedule dealing with the sub postmasters Horizon scandal. The minister acknowledged that action was needed, and we await to see in what form regulations follow.

“The CLC are clear in their ambition to end retention but place caveats to this achievement. One example is the concern of no other surety in place”

Aside from tackling the issue at Westminster, we continue to work collaboratively with the Construction Leadership Council (CLC) and Build UK to recognise that retention is an outmoded instrument in the roofing sector. The CLC are clear in their ambition to end retention but place caveats to this achievement. One example is the concern of no other surety in place. The roofing market is dictated by the requirement to provide material and installation warranties providing this surety on completion.

“We need in our sector to remove the misnomer amongst clients and tier one contractors that retention is linked to quality”

As previously stated, we need in our sector to remove the misnomer amongst clients and tier one contractors that retention is linked to quality. Aside from warranties, all roofing contractors will – and are – seeing higher demands on proof of competency along with great scrutiny of projects. This is reflected in NFRC’s support of its members alongside the requirements for contractors registered to NFRC CPS competent persons scheme, the latter now under the direct authority of the HSE. At a recent meeting involving senior procurement executives from tier one contractors, it was clear that they were receptive to the need to recognise this commitment by NFRC, and its members, to invest in skills development alongside competency scrutiny, and we look forward to further constructive dialogue; to repeat our rallying call: allow our members to invest in their businesses through retaining skills not holding their cash.

“Late payment continues to plague the industry and is a key concern amongst our members”

Late payment ‘plague’
Alongside retentions, late payment continues to plague the industry and is a key concern amongst our members. Less than a third of respondents to our year-end survey stated they were paid within thirty-day terms and the figures were only slightly better for those on longer terms. This has been a consistent trend ever since we started our surveys. We are supportive of the Government’s statutory reporting duty on Business Payment Practices enabling one to check when large businesses pay their suppliers, and its impending update, along with the associated construction sector payment performance tables published by Build UK. However these measures are not, on the face of it, improving the fortunes of the majority of our members. The knock-on impact for SME’s, micro businesses and the self-employed is too often ignored in favour of others who are a strategic risk to a large organisation if not paid within terms.

We will continue to work across the construction sector to tackle late payment and support NFRC members where there is clear evidence of non-contestable delay.

“Be unequivocal on your payment terms, report flagrant avoidance to your trade body”

Lord Fox LD made a very valid observation during a recent debate in the House of Lords on late payments and the reporting duties, stating: ‘My Lords, finally – I am not to be outdone – the Minister sets a lot of store on the public embarrassment issue. I come back to the balance of jeopardy: the Minister is a businessman of the world and he knows that, if you have a publicly listed company, it can make sure it reaches its numbers by the end of the year by extending its outgoings into the following year – it happens all the time. Which is more embarrassing to the board? not meeting its financial projections to the Stock Exchange or having a dirty note in its annual report 12 months later?’

Until and unless a future government tightens payment regulations, the message is clear – be unequivocal on your payment terms, report flagrant avoidance to your trade body and make sure the ‘dirty note’ is not in your annual accounts.

www.nfrc.co.uk

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