Construction (Retention Deposit Schemes) Bill published

The Construction (Retention Deposit Schemes) Bill 2017–19 has been published ahead of its second reading, which is expected to take place on 27 April 2018.

The Construction (Retention Deposit Schemes) Bill is aimed at the safeguarding of cash retentions withheld in connection with construction contracts. It was introduced to the House of Commons on 9 January 2018 by Peter Aldous MP as a Private Member’s Bill—see News Analysis: Construction (Retention Deposit Schemes) Bill takes first steps.

Ahead of its second reading, the Bill has now been published (a copy is available here). If passed, it would add new sections 111A and 111B to the Housing Grants, Construction and Regeneration Act 1996 (HGCRA 1996)—see below for more information.

The second reading will be the first time the Bill is debated, and Members of Parliament will have the opportunity to agree to or reject it in principle. While relatively few Private Member's Bills become law, this Bill has cross-party support and Carillion’s insolvency has highlighted the risks associated with current practice.

The progress of the Bill runs in parallel with the government consultation on cash retentions, which closed on 19 January 2018 and for which the outcome is awaited (see News Analysis: Exploring possible changes to construction retentions and the HGCRA 1996). It remains to be seen what impact the consultation will have on the Bill.

Retention deposit schemes (s 111A)

The proposed section 111A of the HGCRA 1996 (clause 1 of the Bill) would require the Secretary of State, and the Welsh and Scottish Ministers, to pass regulations for the introduction of retention deposit schemes, making sure at least one or more scheme(s) is available. A ‘retention deposit scheme’ is defined as a compliant scheme which has the purpose of safeguarding cash retentions withheld in connection with construction contracts and facilitating the resolution of disputes.

‘Cash retentions’ is defined widely:

monies which are withheld from monies which would otherwise be due under a construction contract, the effect of which is to provide the payer with security for the current and future performance by the payee of any or all of the latter’s obligations under the contract.

Among other things, the regulations are to provide for the selection and appointment of a scheme administrator, funding and management of a retention deposit scheme and the mechanism by which retention deposits are released.

There is also an expanded definition of ‘construction contract’ in this context, being a construction contract as defined by HGCRA 1996, s 104 or ‘any contract created to have a similar effect to a construction contract for the purposes of withholding monies which would otherwise be due under the contract’.

Contractual requirements (s 111B)

The proposed section 111B of the HGCRA 1996 (clause 2 of the Bill) would not come into force immediately, but on a date to be specified in commencement regulations.

In relation to construction contracts entered into after the Bill has been passed, sub-section (1) provides that a cash retention clause will only be valid if:

  • monies are deposited forthwith in a retention deposit scheme
  • prior to the first withholding, the payer notifies the payee and the scheme administrator of the other’s details

Subsection (2) would (it seems) apply to construction contracts entered into prior to the passing of the Bill. It requires all existing cash retentions to be placed in a retention scheme, and for the payer to notify the payee and the scheme administrator of the other’s details. If this is not complied with, then the retention must be returned to the payee within seven working days.

 

Filed Under: Construction

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