IN Brief:
- Westminster has moved toward banning cash retentions as part of a wider late-payment reform package.
- SELECT supports the direction of travel, but still favours protected, ring-fenced retention funds over unsecured withholding.
- The success of any ban will depend on enforcement, defect assurance, and whether workarounds appear elsewhere in contract terms.
SELECT has welcomed the UK Government’s move toward banning cash retentions under construction contracts, arguing that the change addresses one of the most persistent sources of payment friction in the supply chain. The proposal sits inside a broader late-payment reform package, giving the retention debate more immediate commercial weight than earlier consultations.
For specialist contractors, the issue has long been less about principle than exposure. Money earned on completed work can remain tied up for months, and in some cases disappear altogether if an upstream business fails before release dates are reached. That pressure falls hardest on SMEs and subcontractors lower down the chain, where cash flow is often doing the work that formal balance-sheet strength cannot.
Sharon Miller, managing director designate at SELECT, said: “SELECT welcomes the news on this important issue, which damages supply chains and disproportionately impacts SMEs and contractors further down the supply chain.” She also warned that any ban introduced in Scotland will need to be enforced tightly enough to stop retentions simply reappearing under another label or through revised commercial mechanisms.
That caveat is central to SELECT’s longstanding position. The association has argued that, where retention is still used as a defects-security tool, the stronger model is a protected deposit arrangement such as an independently regulated trust or project bank account. In that structure, the money is separated from the working capital of the business holding it, reducing the risk that sums due are lost through insolvency, delay, or non-payment.
The practical question now is what replaces a habit that has become deeply embedded in procurement and contract administration. Retentions have often been treated as a catch-all answer to defects, quality risk, and leverage over completion, even where the actual problem is poor scope definition, weak supervision, or lowest-price procurement. If government follows through, clients and tier-one contractors will need more disciplined approaches to assurance, defect management, and surety.
The direction of travel is now clearer than it has been for years. What remains unresolved is whether a ban will genuinely improve payment discipline across the chain, or simply drive the same withholding culture into a different corner of the contract.
