Asked by
To ask His Majesty's Government what plans they have to end the
practice of cash retentions in the construction sector.
The Parliamentary Under-Secretary of State, Department for
Science, Innovation and Technology () (Lab)
My Lords, I pay tribute to the work of the noble Lord in
championing this issue so successfully over the years. The
Government are committed to amending the Reporting on Payment
Practices and Performance Regulations 2017 to require firms to
report on their policies and provide key metrics in relation to
retentions. We intend to introduce legislation for this in 2024.
We will consider whether further action on retentions is needed
to deliver our manifesto commitment to tackle late payment.
(CB)
My Lords, I am grateful to the Minister for that response. Cash
retentions—withholding payments due to subcontractors for work
done, often for an unreasonable period of time, or indeed for
ever—have a highly damaging impact on the ability of small
construction firms to invest, expand or even survive, and create
pressure to cut corners on quality and safety. The Grenfell
report is a shocking reminder of where that can lead.
There is a long-standing goal of ending retentions by 2025—I
welcome what the Minister has said about the implementation of
the reporting requirement—and widespread industry recognition
that legislation is needed to achieve this. What plans do the
Government have to introduce such legislation, thereby freeing
thousands of construction SMEs to play their full part in
delivering the Government's housebuilding goals?
(Lab)
My Lords, we are prioritising bringing forward the statutory
instrument to amend the Reporting on Payment Practices and
Performance Regulations this year, with the aim of it coming into
force in 2025. This will require large firms to report twice per
financial year on their policies in relation to retentions,
including standard terms for holding retentions and metrics in
relation to payment performance for retentions. We believe that
this information will be most useful to small firms in the supply
chain, and this legislation was developed in conjunction with
firms in the industry and their representative organisations.
(LD)
My Lords, this pernicious issue, interestingly, is not covered in
the Government's construction playbook, which sets out exactly
how public works projects are to be assessed, procured and
delivered. Indeed, a number of government departments and
arm's-length bodies continue to use retentions themselves. So
would it be a good first step for this new Government to put
their own house in order as soon as possible?
(Lab)
The noble Baroness makes an important point about public
procurement. There are steps that we can take to progress on this
issue; it is a manifesto commitment that we will do so.
Obviously, we will consult before we introduce any further
legislation, but we are committed to reviewing our policies on
this issue, to enable more smaller firms to be able to access
public contracts.
of Lainston (Con)
My Lords, late payments in the construction sector hold
developments back significantly, which hinders progress on the
delivery of new homes. The previous Government took strong action
on this and published a payment and cash flow review in November
2023. What assessment have the Government made of the impact of
cash retention on housing delivery, and will the Minister commit
to continuing the excellent work of the previous Government to
tackle this issue?
(Lab)
As the noble Lord has said, there have already been some changes
made to this and we are following that up to introduce further
changes. We will be addressing the value of payments and the
level of invoices not paid because of disputes, but there is more
work to be done on this and enforcement is obviously part of
that. DBT has already written to 416 large companies not
complying with the payment performance reporting requirements and
45% of firms written to have come into compliance. We have
further follow-up action to make sure that those further
transgressions are being addressed.
(Lab)
My Lords, I often think of , who was a
great champion of this issue, and I pay tribute to the noble
Lord, , for following in his
footsteps. Does the Minister agree with me that the present
proposals do not get rid of the plain abuse of power that happens
in subcontracting and contracting in construction? Late payment
leads to bankruptcies in small and middle-sized firms and is part
of the difficulty across the whole of the construction industry
that leads to cutting corners in safety—and we have seen the
results of that over many years. Does she agree that Lord O'Neill
and the noble Lord, , who have been fighting for
this for years, have been looking for something a bit more
concrete?
(Lab)
My Lords, as I have said, it is important that we seek the views
of industry on any reforms. We will take further action and
obviously we will welcome the views of Members of this House, as
well as the construction industry, as part of that process. The
noble Baroness and other noble Lords have talked about safety and
we are acutely aware of the situation with the Grenfell Tower
final report, which highlights the systemic failure of
institutions and individuals to ensure building safety and the
safety of construction products and materials. My honourable
friend the Parliamentary Under-Secretary of State for Building
Safety and Homelessness tabled a Written Statement on 2 September
that commits the Government to a system-wide reform of the
construction products regulatory regime. Those reforms will take
account of the recommendations of the Grenfell Tower inquiry.
(Con)
My Lords, I thank the Minister for her replies so far. On her
last answer, what proportion of businesses and organisations will
be small or will represent small contractors and businesses in
this trade? It is they who suffer most, which, as noble Lords
have said, can lead to bankruptcies. If you are stuck with
payments to make yourself for materials and supplies and you have
not been paid by the overall contractor, you may go out of
business. It is very important to bear in mind that we should
give higher emphasis to the smaller contractors and
businesses.
(Lab)
The noble Baroness is right that the smaller businesses are
getting squeezed at the end of the supply chain, but we are
already making progress with the steps that have been taken,
which will continue with the new regulations that we will
introduce. There have already been improvements in payment
performance since 2018: for example, the average time to pay
invoices has come down from 45 to 32 days. We are doing this on a
step-by-step basis and we are working with industry—the
construction sector—to make sure that this is what people want
and truly effective.
(CB)
My Lords, the Minister mentioned taking the views of industry.
The Government have been taking the views of industry since the
completion of their consultation in 2020. The reason that they
have not come to a conclusion is that there is no consensus with
the industry. I greatly miss the contributions of , who described seeking a
consensus on this issue as being like asking lions and lambs to
sit down together and agree on a menu for tea. There is no
consensus between the larger and smaller firms, which is why the
only solution seems to many in the industry to be legislation.
Reporting is all very well, but it will not solve the problem on
its own.
(Lab)
My Lords, we have been working to resolve the problems associated
with cash retentions through the Construction Leadership Council.
As the noble Lord said, there are a wide range of views across
the sector about the use and problems associated with retentions
and how they might be addressed. Many in the industry are in
favour of reform and are now calling for a legislative ban, in
the way that the noble Lord described, but any policy solution
must be sustainable and work for the whole of industry and its
clients, addressing both the surety and fair payment issues that
are thrown up.
(CB)
Does the Minister acknowledge that the vice of late payments is
not confined to the building industry? Do the Government have any
plans to address this mischief more broadly?
(Lab)
Yes, my understanding is that the changes that will be introduced
are not to affect only the construction industry. Certainly the
late payments legislation that we are working on will be across
the board and not specific to the construction sector.
