Retention Reform?

Last week we heard the news that the Government plans to crack down on retention! Headlines about retention reform should sound like good news — especially to me, a long time campaigner on the issue.

The problem is, I think Jurassic Park is more likely than any meaningful reform of cash retention practices.

Cash retentions strip specialist contractors of vital cash flow — often their entire profit — forcing them to gamble on whether they’ll see it at all, or wait 12 months to get it.

Reform was needed and is welcome — after all, this is what I and countless others have been pushing for. But just as Tour de France cyclists stayed ahead of the drug testers, main contractors will find ways around reform. The incentive is simply too great.

So, if main contractors won’t give up the 5% cash flow boost they’ve come to rely on, how will they create “proxy” retentions? Here are my predictions:

1. Delayed payment clauses – Preventing payment above 95% of an item’s value until practical completion.

2. Creative pricing items – Adding line items equivalent to 5% of the contract value, labelled as something like “acceptance of O&M” or “practical completion costs.”

3. Contracting out of the rules – Using commercial pressure to opt out of retention regulations, as many legal defaults can be waived if both parties are “competent” to agree.

4. Prompt payment discounts – Offering to pay “early” (read: on time) in return for a discount, which is then refunded in the final payment — a disguised retention scheme.

5. Brazen continuation – Simply continuing retentions as before, banking on specialists accepting them for fear of damaging relationships. But is that really a two-way relationship?

   
   

I’m hopeful that legislation will make retentions a thing of the past and help specialist contractors access the cash they’ve already earned. But the pessimist in me says we’re still a long way from seeing the back of them — whether in their current form or a poorly disguised version like those above.

History shows that strong initial proposals often get watered down before becoming law, usually under pressure from Tier 1 contractors. Maybe this time will be different.

If you need help reviewing contracts or negotiating the release of your retention, drop me an email and let’s have a chat.