NFRC Asks Politicians for Action on Retentions
NFRC anticipates an upcoming consultation on additional legislative measures to address late payments and long payment terms. We are eager for the status of retentions to be considered within this consultation and have made this clear. Read the letter below.
I write to you on behalf of the NFRC (National Federation of Roofing Contractors), the UK’s largest roofing and cladding trade association, representing over 1,200 businesses in a sector worth over £6bn to the economy.
Despite the introduction of new reporting requirements, retention clauses will continue undermining the construction industry’s potential for growth and ability to meet housing and infrastructure targets. The abolition of retentions in construction remains NFRC’s primary objective and I believe we are at a critical juncture that could result in real reform.
As you know, retention clauses allow employers to deduct and retain a proportion of the contract’s value—otherwise owed to the supplier—until contractual conditions are met, typically a two-year defect liability period.
The Impact on Growth
Despite overdue changes to reporting on retentions, they will continue limiting growth and benefitting those who exploit agreed terms. Our research estimates that £300 million is kept out of roofing contractors' pockets by the practice.
Reporting procedures will not address the fundamental problem with retentions, which are contrary to common law and unfairly restrict cash flow for smaller companies that often do not have the resources to challenge retention disputes.
Additionally, retention funds will remain vulnerable to forfeiture in the event of insolvency, which remains common across construction. A recent high-profile example is the collapse of ISG, which resulted in over 16 NFRC Members suffering significant losses from unpaid retention.
A NFRC Member that lost £127,000 in retentions due to the collapse asked, “How has the supply chain been let down so badly?”
Another smaller NFRC business, which lost £7,000 in retentions when ISG collapsed, told us, “This again underlines the unfairness of the retention system on sub-contractors – not only are we made to wait and battle for retention payments, they are often lost altogether due to problems out of our control.”
Retentions are especially redundant in roofing, where manufacture and workmanship-backed guarantees from legitimate operators vastly exceed the standard two-year defect liability period in retention clauses. It should be noted that these guarantees only come into force on sign off of the works. Manufacturer guarantees typically require full payment from the roofing contractor before being effective, while the contractor receives part payment from the client.
Future Action
NFRC is foremost calling for the abolition of retentions as outlined in the Construction (Retentions Abolition) Bill introduced in 2021. NFRC urges action to ensure that retention clauses are considered within the upcoming consultation on further legislative measures around payment practices. The consultation must establish that systemic reform to retentions is necessary. A written question to Under-Secretary of State (Minister for Services, Small Business and Exports) Gareth Thomas on the nature of retention’s inclusion within the consultation would be a great first step.