Overview

This bill aims to abolish the practice of withholding payments, known as "retentions," in construction contracts in England and Wales. Currently, clients often withhold a percentage of payments to contractors as security against potential non-performance. This bill seeks to eliminate this practice, ensuring prompt payment to contractors.

Description

The Construction (Retentions Abolition) Act 2021 amends the Housing Grants, Construction and Regeneration Act 1996. It makes any clause in a construction contract (signed after the Act's passing) that allows for the withholding of retentions legally void. The Act defines "retentions" as monies withheld to secure a contractor's performance. This definition also includes clauses designed to achieve the same effect as withholding payments under the main contract. The bill mandates that any withheld retentions must be paid in full within 7 working days of their due date. The Act applies to England and Wales and is scheduled to come into force on 1 January 2025.

Government Spending

The bill is not expected to directly impact government spending. The potential indirect effects, such as changes in the cost of construction projects or potential disputes, are difficult to quantify at this stage.

Groups Affected

This bill will primarily affect:

• Construction companies (contractors): They will receive payments promptly, improving their cash flow and potentially reducing financial risks.
• Construction clients (payers): They will lose the security provided by retentions, potentially increasing their risk of losses if a contractor fails to complete the work. They may need to explore alternative risk management strategies.
• Insurance companies: The change may lead to adjustments in insurance premiums or coverage related to construction projects.

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