In the wake of Carillion’s collapse - which was underscored by significant retention losses - a draft Bill proposing amendments to the current rules on protecting retention deposits in construction contracts was published on 23 April 2018.
Summary of the proposed provisions
Whilst the exact details of the scheme are still unclear, the draft Bill proposes to amend the Housing Grants, Construction and Regeneration Act 1996 (the “Act”), with the introduction of a new requirement that retention money must be deposited in a retention deposit scheme.
A retention deposit scheme is defined as a scheme which, “is made for the purpose of safeguarding cash retentions withheld in connection with construction contracts and facilitating the resolution of disputes arising in connection with such cash retention.”
Under the proposed rules, any clause in a construction contract which allows the deduction of cash retentions would be ineffective if, upon withholding the retention, the money is not placed into a retention deposit scheme.
Importantly, the new scheme would also apply to existing contracts; meaning that if any money already withheld after the coming into force of any new rules were not placed in a retention deposit scheme, there would be a requirement to refund the full cash retention. This is a development which could create cash flow problems for some employers.
Further, as well as applying to a “construction contract” as defined by section 104 of the Act, the Bill would extend and apply the deposit scheme to “any contract created to have a similar effect as a construction contract.” It will be interesting to see how such a wide definition would work alongside the Act.
At the moment the Bill is continuing to make its way through the legislative process. The next key date is the Bill’s “second reading” where the Bill will be debated and either agreed or rejected in principle. This is currently scheduled for 15 June 2018.
Whilst the Bill is a Private Member’s Bill, it has received substantial backing from a number of MPs and construction trade bodies. It comes in light of the Government’s consultation on cash retentions, which closed on 19 January 2018.
This is not the first time change has been proposed to the retention regime and it remains to be seen whether the current climate, following the collapse of Carillion, will be enough to help spur this fresh attempt into law.