Construction Contracts Retentions – (Don’t Wait!)
Due to changes in legislation for dealing with the payment of monies due on construction industry contracts, subcontractors should now find it far easier to get paid for their work done. This newsletter seeks to make you more aware of these changes in order that you can better support your construction clients and successfully recover the monies they are owed.
This article has been exclusively provided to Bridge Newland’s members by Warren Berwick, a specialist construction solicitor at Kennedy Law LLP:-
Construction Law Changes…
The debtor books for most subcontractors in the construction industry include a significant value for retention monies. Securing the release of those monies from the various payers is becoming increasingly difficult as the whole industry is struggling to maintain cash flow. Routinely retention monies are held until at least one year after completion of the construction works. This is because the paying contractor commonly links the release of retention in the subcontract, to release of the retention in the main contract. Then when the date for release eventually arrives, all manner of excuses are deployed to avoid payment.
Since 1 October 2011, new legislation has prevented main contractors from linking the
release of retentions in the subcontract to a release under the main contract. However, some subcontracts entered into after that date still contain terms (the retention release provisions) which purport to do that. These provisions will not be enforceable, instead, they will be replaced by the statutory payment provisions found in the Housing Grants Construction and Regeneration Act 1996 and the Scheme for Construction Contracts.
Under the Scheme, payment of the retention will be due 30 days after the subcontracted works are complete, provided the subcontractor has applied for payment. This means that payment of the retention could be due over 1 year earlier than is stated in the contract and could have a significant positive impact on the cash flow of your subcontractor clients, where retention monies are collectable at this earlier time.
“This means that payment of the retention could be over 1 year earlier”
To check if this applies to your client’s subcontract…
1. Firstly, identify whether the subcontract was entered into on or after 1 October 2011.
2. Then review the retention release provisions – If release is linked to a time or event determined under the main contract there is a good chance that the new statutory provisions will apply.
Remember – To trigger the release it is important that the subcontractor makes an application for payment.
Payment Suspensions on Insolvency
All of this still applies where a subcontractor is insolvent. In these circumstances though it is important that the release of the retention is applied for before the formal appointment of the Insolvency Practitioner. Otherwise there is a risk that other contractual provisions may suspend the subcontractor’s right to payment of the retention.
Click on this link for full details on PAYMENT SUSPENSIONS ON INSOLVENCY.
Bridge Newland Limited are specialists in dealing with construction businesses therefore if you believe that one of your clients needs further advice on this topic, or may wish to discuss our insolvency services generally then call us for free to arrange an initial no obligation meeting on 0800 612 6197 or visit our CONTACT US PAGE.
Alternatively, for more information about these legislative changes or for a quote from Kennedy’s Law LLP to assist with the collection of monies due on a construction contract call Warren Berwick on 0121 214 8040 or e-mail him on firstname.lastname@example.org.