Contractors holding back £800m from supply chains

22 February 2017

The UK’s 12 biggest construction companies are holding back more than £800m worth of payments to suppliers in the form of retentions, an industry body has claimed.

The Specialist Engineering Contractors’ Group (SEC), an umbrella group of engineering trade associations, said it was likely most of this money was owed to SMEs.

Retention is the commonplace practice of holding back part of a contractor’s payment as security to ensure work is carried out and contractors return to fix defects. However, businesses risk losing out if clients holding retentions go into insolvency. This could particualarly hurt SMEs, where retentions often represent the profit element of a contract, according to Professor Rudi Klein, group CEO of SEC.

“There is no other industry sector in the UK where such a large amount of cash is at risk especially for SMEs,” he said.

SEC has called on the government to introduce laws protecting businesses from this risk. It has also called for legislation to prevent the late return of retentions. “By the time these monies are released back to SMEs in the supply chain some years would have elapsed,” said Klein.

Similar regulations already exists in parts of Europe, Australasia and North America, said SEC.

By analysing published accounts SEC said it estimated the dozen construction companies were collectively owed more than £1bn in retentions from their clients. However, £400m of this was probably held by the public sector and so did not carry insolvency risk, said SEC.

Using the same accounts SEC estimated these contractors held more than 80% of this figure, £800m, in retentions from their own supply chains. It noted that one firm's published accounts showed it held 1.5 times more in retentions from its supply chain than it was owed by clients. 

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