Are you a party to a commercial construction contract as defined by the construction contracts legislation, or are you an adjudicator or arbitrator? If so, are you aware of potential significant changes for the construction sector?
Last month, the Department for Business, Energy and Industrial Strategy announced two consultations:
- to investigate the common use of cash retention in construction contracts; and
- to evaluate the effectiveness of the 2011 changes to the Housing Grants, Construction and Regeneration Act 1996 (the “Construction Act 1996”)
Problems relating to retention payments are well-known within the industry. Recent research into retentions identified several key issues, including:
- An estimated £3.2 billion to £5.9 billion is held in retentions within the construction sector over the course of a given year.
- Inconsistent decisions as to whether to hold retentions and in what circumstances? Resulting in potentially avoidable disputes.
- Paying the retention late or not at all is a significant issue for some contractors, with the delays increasing further down the supply chain, particularly in upstream insolvency scenarios.
The consultation, therefore, seeks to consider the reasons why retentions are often paid late (or not at all) and raises the question whether there should be a cap on the rate or length of time a retention can be held for. It also looks at alternatives such as project bank accounts, escrow accounts, retention and performance bonds and retention deposit schemes.
Assessment of the 2011 changes
In 2011, several key changes were made to the Construction Act 1996 identifying important aims, including the need to:
- increase transparency in the exchange of information relating to payments
- encourage parties to resolve disputes by adjudication where appropriate
- to strengthen the right to suspend performance for non-payment
This consultation’s primary purpose is to review the impact of the above changes and assess its effectiveness in achieving its objectives as part of the government’s commitment to better regulation in the sector.
The consultations can be accessed here.
You have until 19 January 2018 to submit your thoughts.
We will update you about the findings of both consultations in the New Year.