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The review of how retention arrangements work in the construction industry, recently announced by the Department for Business, Innovation and Skills, will be welcomed by all parties to such agreements.
Retentions are often a problematic issue in building contracts, although their use is widespread. In particular, the retention for what can be a considerable period of time of a significant proportion of the total profit on a contract can cause serious cash flow issues for contractors and their subcontractors, who also normally face retentions.
In addition, there is a widespread feeling that the use of retentions imposes an unnecessary administrative burden on all those involved. A retention may act as a practical guarantee of the quality of work done, but its payment is often in practice under the total control of the contractor's employer and may be unnecessarily delayed, or even be at risk if the employer faces cash flow problems.
Suggestions for change include the use of a 'bond' system, or the use of payment into trust.