An analysis of the accounts of the UK’s top 12 construction companies has revealed that the 9 which published separate figures for retentions are owed more than £800m, indicating that the 12 together are owed over £1 billion of cash retentions.  The analysis was carried out for leading construction representative body, the Specialist Engineering Contractors’ (SEC) Group.

Over 80% of this sum – in excess of £0.8 billion – would have comprised the retentions withheld by these companies from their supply chains, the overwhelming majority of whom would have been SMEs.  One contractor’s accounts showed that it was holding a retention amount against its supply chain that was significantly greater than the amount withheld against it by its clients.

Professor Rudi Klein, SEC Group’s CEO, said that the analysis was extremely timely given that publication of a government review of the retentions system was imminent.

He added:

“There is no other industry sector in the UK where such a large amount of cash is at risk especially for SMEs.  By the time these monies are released back to SMEs in the supply chain some years would have elapsed. In a high proportion of cases the retention represents the profit element for SMEs”.

SEC Group estimates that £0.4 billion would have been held by public sector bodies.  In this case the retentions provided by the top contractors would not be at risk (since public bodies do not go into insolvency), but there is still a significant risk for the SMEs lower down the supply chain.

SEC Group has been urging the government to introduce legislation to protect or ring-fence cash retentions to remove the insolvency risk and to ensure that retentions are released on time.  Such legislation already exists in parts of Europe, Australasia and North America.

NOTES

  1. The Specialist Engineering Contractors’ (SEC) Group represents engineering in construction, the largest sector in the industry by value. It is an umbrella representative body comprising the sector’s premier trade associations: British Constructional Steelwork Association, Electrical Contractors’ Association, Building and Engineering Services Association, Lift and Escalator Industry Association, SELECT (Electrical Contractors’ Association for Scotland) and the Scottish and Northern Ireland Plumbing Employers Federation (SNIPEF).
  1. The analysis related to the accounts of the following companies Balfour Beatty, Carillion, Kier, Interserve, Laing O’Rourke, Morgan Sindall, Galiford Try, ISG, Mace, Wates, Vinci and Willmott Dixon. The analysis covered these companies’ accounts published between 30 June 2015 and 30 June 2016.  Three of the companies did not reveal in their accounts their retention amounts and so an average figure was applied in their cases.  Last year financial analytics firm Company Watch put a health warning on three of the listed companies.
  2. One large company’s published accounts showed that it had withheld an amount of retention for its supply chain that was 1.5 times greater than that which had been withheld by its clients.
  1. The 200 year old system of cash retentions in the construction industry exists – ostensibly – as security in case a firm does not return to rectify defects. In practice retentions are used to bolster the cashflow of the party holding them.  Research already carried out by SEC Group has revealed that many public bodies use the monies to finance other work or even to invest them on the overnight money markets.
  2. Cash retentions are deducted from due payments and, therefore, legally belong to the companies that have carried out the work. Thousands of SMEs in the industry wait for over 2/3 years to recover their outstanding retentions.  In 2015 small firms lost between £40m and £50m worth of retention monies as a result of insolvencies up the supply chain.
  3. For further information please contact Professor Rudi Klein (email: Klein@secgroup.org.uk, mobile: 07767 412 903) or Maria Balermpa, SEC Group’s Operations and Public Affairs Manager, (email: contact@secgroup.org.uk, Mobile: 07508 559 231).