Architects have backed demands for a radical change to construction industry payment practices in the wake of Carillion’s high-profile collapse
But the RIBA warned that any move to reduce reliance on retentions – where payments to suppliers are withheld until certain stages of project completion – should be carefully managed.
A government consultation on the use of retentions in the industry closed last week, with key construction trade bodies calling for the practice to be eradicated altogether by 2025.
The Civil Engineering Contractors Association, Build UK and the Construction Products Association all claim that Carillion went into liquidation holding up to £800 million in retentions ultimately owed to suppliers.
Build UK chief executive Suzannah Nichol said: ‘The collapse of Carillion has reinforced the need for significant change in the construction industry, and we urge the government to take legislative action to abolish cash retention.’
RIBA executive director Adrian Dobson said: ‘The collapse of Carillion has highlighted the need for deep-seated and fundamental reforms to the construction sector. Moves away from cash retentions would be welcomed by many architects. However, we need to be careful to ensure that this does not become a sticking plaster to put off structural reforms.
‘We look forward to hearing more about the proposed alternatives to cash-retentions although we would caution those who see this as a straightforward process. A move towards an insurance-based quality assurance model – such as that already in place in housebuilding – risks further damaging public and political trust in the sector if it fails to offer clients real protection against substandard works.’
The consultation report said evidence suggested retention money being lost due to contractor insolvency ‘affects a large proportion of contractors who use retentions’.
It added: ‘There is a need to further investigate the suitability and feasibility of wide use of alternative mechanisms to retentions in the construction sector in England, in particular, a retention deposit scheme and holding retentions in a trust account.’
Carillion went into liquidation on Monday 15 January with as much as £1.5 billion of debt. Labour MP Jon Trickett told MPs in Parliament this week that Carillion had not paid any bills from suppliers in December.
Civil Engineering Contractors Association chief executive Alasdair Reisner last week warned that hundreds of architecture practices could be affected by the fallout of Carillion’s collapse.
The Insolvency Service said it could not comment on Carillion’s practices before it went into liquidation.