The results of a Scottish Government consultation earlier this year indicate majority support for reform of cash retentions under construction contracts. Cash retentions have been used in the construction industry for decades as security against defects in the work but it is a payment practice that is vulnerable to both insolvency and abuse.
Indeed, the majority of respondents to the consultation had experienced late or non-payment of retention monies, some waiting more than a year for the retention to be released.
Deposit scheme proposal
The survey found that most respondents are in favour of some sort of retention deposit scheme, and/or holding retentions in trust to eliminate the main problems associated with retentions and still provide surety against defects. There was no clear consensus as to what type of reform would be most effective, nor whether there should be a minimum threshold before retentions should be deposited/held in trust.
The Scottish Government will now form a short-life working group to consider the emerging policy options, including the possibility of a retention deposit scheme, the phasing out of retentions completely or the viability of alternative mechanisms of assurance.
Get in touch - we're here to help
Please contact our specialist construction team for advice on means of protecting cash retentions, alternatives to cash retention or on disputes over the release of retentions.