Exploring possible changes to construction retentions and the HGCRA 1996

Exploring possible changes to construction retentions and the HGCRA 1996

Following a consultation process on retentions in the construction industry, and on the 2011 amendments to the Housing Grants, Construction and Regeneration Act 1996 (HGCRA 1996), Francis Ho, partner at Penningtons Manches, considers the possible changes that could be made to the law around retentions, payment and adjudication.

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What were the consultations about?

The Department for Business, Energy & Industrial Strategy (BEIS) ran two parallel consultations from 24 October 2017 to 19 January 2018. The first focused on the long-standing practice of clients and contractors holding cash retentions from their supply chains. The second was a review of the impact of the amendments to HGCRA 1996, Pt II, brought in from October 2011 through the Local Democracy, Economic Development and Construction Act 2009 (LDEDCA 2009).

 

Retentions

The retentions consultation followed detailed research commissioned by BEIS in England into businesses’ experiences with cash retentions, their disadvantages and possible alternatives. Cash retentions have long been a prickly issue within the construction industry. Clients and main (Tier 1) contractors typically hold back 3–5% in retention from any payments due to their own contractors, primarily to incentivise them to remedy any defects in construction works that come to light during the defects liability period. Half of this sum is usually returned to contractors at practical completion, with the remainder being paid at the end of the defects liability period (generally lasting for 12–24 months), subject to any set-offs the payer is permitted to make.

These retained funds can be abused, with those holding them either releasing them late or even not at all.

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