Keeping up the fight

Our in-house specialist responds to a recent Member inquiry about retentions by advising on the latest developments and asking: Will the Scottish Government act?

As readers of CABLEtalk will know, SELECT has been active on the battleground of retentions for many years, fighting tirelessly on Members’ behalf for improved payment practices.

Unfortunately, change in contractual practices seem to recur at a snail’s pace and this is particularly true with retentions, which have been embedded in contracts for about 200 years.

However, things started to look up last year. For starters, we had the Pye Tait report which had been commissioned by Scottish Government and which revealed some interesting statistics:

81% of clients in Scotland rely on retentions, compared to 65% in England
Compared to England, almost twice the proportion of clients in Scotland use retention monies as part of their working capital
82% of Tier 1 contractors use retentions as part of their working capital – no surprise there!
Some Tier 1 contractors actually invited clients to deduct retentions to make it easier for them to withhold retentions downstream, although they don’t usually need an excuse to do this.

Summing up, Pye Tait concluded: “There is a strong reason to accept that the system of retentions is not working to the advantage of the Scottish construction sector.”

Pye Tait recommended that the fairest outcome would be for cash retentions to be protected in an independent ring-fenced account. This was echoed by the majority of respondents to the Scottish Government consultation which closed in May last year.

“There is a strong reason to accept that the system of retentions is not working to the advantage of the Scottish construction sector”

Scottish Government Retentions Working Group

At the beginning of this year, the Scottish Government set up a working group to consider how best to take the matter forward, having regard to the outcome of the consultation and the Pye Tait report.

We are represented on this group by the excellent Gordon Matheson, Past President of the Scottish and Northern Ireland Plumbing Employers’ Federation (SNIPEF). While its deliberations have been kept under wraps, it is to be hoped that we might see some positive developments during this (new) session of the Scottish Parliament. Watch this space!

An example from England

A recent legal case in England has, yet again, emphasised that retentions are not intended to be a convenient pot of money to use for whatever purpose deemed appropriate by the party withholding them. After all, retentions are still owned by the contractor from whom they have been deducted.

The case is between D R Jones Yeovil Ltd, a contractor, and The Stepping Stone Group Ltd, a property developer.

Yeovil had issued proceedings to recover the final part of retention monies owing on contracts to build assisted living units. The contracts were JCT contracts, published in Scotland by the Scottish Building Contract Committee.

The 12-month rectification period, or defects liability period, had expired. But the client had never issued a making good certificate, even though there were no outstanding defects notified during that period.

The contractor complained that the developer had “raised a series of after-the-event, ever-changing and meritless points in an endeavour to resist paying the balance of retention properly due”.

The developer argued that it had a counter-claim in respect of alleged defects which had not arisen during the rectification period. Moreover, since a making good certificate had not been issued, the developer was not bound to release the monies

The court ordered the developer to release the outstanding retentions.

Withholding of retentions was governed strictly by the terms of the contract. Unless there were outstanding defects notified during the rectification period, which had not been made good, a client was bound to issue the certificate. It couldn’t refuse to release the monies on the grounds that it had some other claim against the contractor, e.g. liquidated damages.

Insisting on release of sub-contract retentions

A Tier 1 contractor may say that your retentions cannot be released because of problems with other trades. Such an excuse should not be allowed to hold up the release of your retention. You have every right to insist it is released at the end of your sub-contract rectification period, or defects liability period. Furthermore, a Tier 1 contractor cannot delay release of your monies because a certificate of making good has not been issued under the main contract. It is illegal to insist on a pay-when-certified provision.

GOT A QUESTION FOR RUDI?

If you are having problems regarding release of retentions, or have another query you would like Rudi to help with, please email iain.mason@select.org.uk