Practical Steps For Getting Your Retention Money Back

As the country continues to combat the coronavirus, the UK Building Engineering Services Association (BESA) has called on construction buyers to release the £4.5 billion currently being withheld from contractors and subcontractors in the form of retention payments.

For more than two decades, BESA has been campaigning for a reform of the retention payments system. The new request comes in a bid to inject much-needed cash into struggling supply chains as a result of the COVID-19 pandemic, with BESA saying many specialist contractors are now facing a rapid fall in turnover this month.

What are retention payments?

The construction industry is no doubt familiar with the concept of retention. It is a proportion of money, typically between 1.5% and 5%, that is held back in case it is needed as a lever to persuade contractors and subcontractors to rectify any defects once a project has been completed.

Typically, half of this fund is released on completion of the work and the second half at the end of the maintenance period, which can last for more than a year. However, it is common for companies to hang on to retention payments months after the defects liability period has ended. Often, they simply do not pay at all.

Although the issue of a small percentage of payment becomes less important over time, this sum of money is invaluable and can contribute significantly to the profit margin on contracts. This means many contractors and subcontractors are missing out on payment to which they are entitled.

Obtaining retention payments owed to you

As the coronavirus continues to have a dramatic impact on businesses across the construction industry, it is vital to ensure retention payments are released to relieve immediate cash flow challenges.

Furthermore, chasing payments is time consuming, ties up staff and requires tenacity and perseverance. Collecting retention payments promptly will free up more time for the sector to keep delivering essential building services during these unprecedented times.

There are some practical steps contractors and subcontractors can take to make sure they get their retention payments back:

  1. Establish terms and conditions

When retention remains unpaid, relative terms and conditions can help. Terms can include specific late payment terms and penalties. When pointed out to your debtor, they can be an effective incentive to pay quickly.

It is important that terms are referred to in the contract, which should be signed wherever possible, and that this is provided to the client before the contract is entered into. Terms of business can also limit liability in the transaction and provide you with security.

  1. Stay on top of the dates when your retention return is due

Credit control steps should be taken in an organised way. It is easier to manage if you have a procedure set to timescales.

Telephone contact is effective. Ensure you are speaking with the correct person and they are able to authorise the payment – establishing a contact at the outset of a contract of who is authorised to release the money will speed things up when chasing retention payments.

  1. Keep accurate records

All correspondence, whether letter, phone or e-mail, should be recorded. This provides an evidence trail and can help to eradicate any excuses or queries. If recovery processes are required, the information is clear and makes the process quicker and more efficient. Clear information will help when drafting Court papers and help with negotiations.

  1. Use an experienced solicitor

While there are costs to putting preventative measures in place, the cost of not doing so could threaten your livelihood and the livelihood of those you employ. Introducing a third party at collection stage can also help to preserve commercial relationships, separating the financial issues from the practicalities of an on-going contract can provide a useful space to solve problems away from the day to day practicalities.

retention paymentsHow Nelsons can help

Simon Key is a Partner in our Debt Recovery team.

Our debt collection service, in conjunction with our specialist Construction team, have experience and knowledge of the law surrounding retention payments and this allows them to collect them quickly and effectively.

We will work out when payment is due to you and contact you to agree when collection should be made. The charges for our construction retention collection service are transparent and easy to follow. We offer fixed fee services which are based on the amount due to you.

For further information or to comment on this article, please contact Simon or another member of our team in DerbyLeicester or Nottingham on 0800 024 1976 or via our online form.