Retention In Construction and Engineering Subcontracts
If you would like help relating to the collection of retention money as a subcontractor in the construction or engineering industry, you can call us now for free advice** on 01773 712116 or email: firstname.lastname@example.org
High Speed Retention Recovery
Don’t let them get away with it. Retention is your money and you are entitled to collect it when it is due!
In the meantime here is a quick account of how one Streetwise Buddy benefited from the advice he got from us recently.
Our Buddy, a roofing and cladding subcontractor was owed retention of £36,331.40 plus VAT on a job that had long since been finished. The retention should have been paid way back at least a year before, but despite our Buddy’s best efforts it had still not been paid.
Oh how Contractors make excuses for non payment of retention!
With the StreetwiseSubbie’s help our Buddy received his money very soon after appointing us.
Time from asking Streetwise to help to our Buddy getting paid – 7 days!
So if you need to know how to recover retention from a Contractor, just click here now and see how we can help you collect your retention monies or give us a call on 01773 712116 or email: email@example.com
How Specialist Contractors Can Get Your Retention Money Back
As a subcontractor in the construction or engineering industry, you’ll be familiar with the concept of retention – the proportion of money that the client holds back, in case they need to use it as a lever. This ‘lever’ is used to persuade the main contractor to correct any defects that might become apparent after the contract has been signed off.
Of course, as a sub-contractor you also have retention deducted from payments the main contractor makes to you. A typical figure is as much as 5%.
Do you get back all the retention payments that are deducted on the contracts you undertake? If not, you are far from alone. The majority of subbies don’t make it a priority.
Smart Subcontractors Make Sure They Get Retention Back
Smarter subbies make sure they do what needs to be done to get all their retention money back, because it increases their profit margin!
How do they do it? Quite simply, with a bit of cost-effective professional help from Streetwisesubbie. But before we talk about that, let’s clarify a few things about how retention is supposed to work, what your legal rights are, and how many subcontractors are still missing out (or in some cases being exploited) when it comes to recovering retention monies.
How Retention’s Ought To Work
Various terms are used in construction contracts to describe the completion of sub-contracted works. A common one is ‘practical completion’. At this stage, a certain proportion (usually half) of retention should be paid back to the sub-contractor. This figure is known as the first moiety of retention.
After this, there is a set period of time, typically 12 months, usually known as the ‘defects liability period’. This is a kind of warranty period (confusingly “warranty” can have several meanings), during which the contractor, and by extension the sub-contractor, is obliged to rectify any defects.
The usual practice is for the works to be inspected at the end of the defects liability period, unless there is an urgent need for more immediate rectification. At this point, a schedule of defects is drawn up.
When the contractor and any relevant sub-contractors have done their bit, the works are inspected again. If everything is to satisfaction, the client issues a document called ‘certificate of making good defects’.
At this stage, the second moiety of retention is normally due to be paid out to the main contractor, and in turn he should pay this to his subcontractors.
How The Construction Act Has Changed Retention
Before the Construction Act 2011 came into force, as a sub-contractor it was possible for the paying back of your retention to be linked to something defined in the main contract.
In other words, you might not get your money back because of an issue between the client and the main contractor that was nothing to do with you, but was nonetheless holding up the release of retention.
The current Construction Act prohibits making payment to you being triggered by an event under another contract. What this means is that the terms of release of retention back to you the subbie must be dealt with in your contract, and not linked to an event in the main contract.
Loopholes And Other Unfair Tricks
On the face of it, that sounds like better protection for you as a sub-contractor. However, since the Act became law, contractors have been busy finding other ways to avoid having to pay back retention’s to sub-contractors. A common one is the setting of increasingly longer timescales for the point at which the retention should be released.
That is unfair on you. If you have completed your work in a satisfactory way and corrected any defects that might have occurred, then you should be paid the retention money that is rightfully yours.
If contractors are holding onto part of your retention money, then that can represent a significant proportion of your profits. It is no better than late paying an invoice: all the time you are not being paid back, the contractor is using your retention money to help bankroll their business.
Sometimes this can be because the contractor is badly organised and doesn’t get around to paying back the sub-contractors. However, often it’s not an accident. There are even cases in which contractors have made the absorption of sub-contractors’ retention’s into their own profits part of their usual operating procedure.
The Mistake Most Sub-Contractors Are Still Making
Still, despite all this, it is a fact that most subbies don’t put a high priority on collection of retention money. How high a priority do you make it yourself?
It is easy to see how this happens. Most of the time, you are looking at the jobs you are working on at the moment, and making sure you maintain cash-flow in the here and now. The issue of a small percentage of a contract from last year becomes less important as time goes on.
However, these small percentages can add up to many tens or hundreds of thousands of pounds.
How StreetwiseSubbie Can Help You
There are ways you can improve your processes and the wording of your terms, and ensuring you stay on top of the dates when return of retention is due.
When were your terms and conditions last updated? Do they take into account your rights under current laws?
Could you do with expert help in negotiating an important contract, or assistance with debt recovery?
We’ll be pleased to have an initial conversation to see how we can help you. For more information please contact us on 01773 712116 or email us on firstname.lastname@example.org and we will get in touch at a time that suits you.
What is Retention And How Does It Work?
Retention is money held by the Employer/Client as a safeguard against defects which may subsequently develop and which the Contractor may fail to remedy.
Retention is usually set at either 5% of the value of the works or 3% in the case of some (usually larger) contracts. This percentage is then deducted from all the interim payments made to the main contractor who then deducts it from all his sub-contractors.
Once the sub-contract works are complete, the percentage of monies to be deducted as retention should be halved and what is described as the first moiety of the retention should be paid back to the sub-contractor. This stage of the sub-contract works has different names in different contracts but “practical completion” is a common term.
Ordinarily there then follows a period commonly known as the “defects liability period”. This is usually either 6 months or 12 months, and 12 months is common place. During this period the contractor and therefore his sub-contractors have to make good any defects in the works.
Usually, unless remedial work is urgent, the works are inspected at the end of the defects liability period and a schedule of the defects is produced. The contractor and his sub-contractors remedy the defects and when they have done so, the works are inspected again and what is commonly referred to as a “Certificate of Making Good Defects” is issued and the second moiety of retention is paid out.
The Current Position On Construction Retention
The position in most Sub-Contracts entered into before 1 October 2011 was that release of half of the retention took place after completion of the Sub-Contract Works and release of the balance of retention after the Certificate of Making Good Defects (or similar) had been issued under the Main Contract.
The changes to the Construction Act which have now come into force mean that construction contracts entered into after 1 October 2011 can no longer link the release of retention to an act or event occurring under another contract (usually in the Main Contract)
This means that release of retention must be triggered by a specific act or event occurring under your contract, for example, the expiry of the defects liability period in the Sub-Contract or on a predetermined date which is specified in the Sub-Contract.
Any contracts entered into after 1 October 2011 that continue to link the release of retention to another contract will not be compliant with the Act and the release of retention will be governed by the Scheme for Construction Contracts.
But, watchout because Contractors are finding all sorts of ways to avoiding paying retentions within a reasonable period of time. In particular they are setting ridiculously long periods before retention becomes due for release.
At StreetwiseSubbie our Consultants are well versed in helping you to collect retention’s and helping you to negotiate sensible contract terms regarding retention.
Why not click here now and see how we can help you collect retention monies when you become a Streetwise Gold Buddy?
Collecting Your Retention Money
The collection of retention money is not usually on most Specialist Sub-Contractors’ list of priorities. Stop and think about that for a moment.
What is your actual nett profit as a percentage of sales?
If you are like most Specialist Sub-Contractors, your actual profit after overheads might be as low as 3% to 5% of sales. If contractors are hanging on to 2½% of sales, they are effectively hanging on to your profit.
In most Specialist Sub-Contracting businesses, attention is focused on the now, the current jobs and the cash flow from those jobs. This is, of course, extremely important and attention has to be given to those issues. There will be many situations and problems competing for your time. Those that make the most noise should not necessarily get the most attention. It is easy to get sidetracked by things that take up a lot of time and energy but don’t have much payback.
However, if you set clear priorities, you can focus your team on the collection of retention money without affecting the rest of your business.
You simply do not have enough time and energy to do everything yourself.
In order to improve the collection of your retention money, you are probably going to have to delegate some of the work to others. You will need to decide who is to be responsible for improving retention collection and who is actually going to do what. You may choose to set all this out in writing so that everyone knows the respective parts they are going to play. Do not fall into the trap of delegating the task to someone who does not have the skill and expertise to do the job.
For your team to be effective, they will have to overcome the likely problems they will experience. Contractors’ accounts departments are good at putting off Specialist Sub-Contractors’ accounts departments when it comes to retention. You may need to train and develop your people to improve their skills as the collection of retention requires contractual knowledge, persistence, good people skills and a degree of assertiveness.
There are many different contractual provisions but release of the first moiety of retention is normally linked to completing the works on site, the stage commonly referred to as practical completion.
The date of practical completion is important for all sorts of contractual reasons and one way or another, this date needs to be confirmed to the contractor as soon as possible after the works have been completed. The contractor will rarely issue a Certificate of Practical Completion, even if he is required to do so under the contract.
You should always ask the contractor to release the first moiety of retention and not wait for this to happen. If your works on site are complete and if the contract says the first moiety should be released at this stage, then the first moiety should be released. If the contractor does not release the first moiety then your team should investigate why he hasn’t.
It is essential to keep good records and copies of any correspondence your team sends. This can be very useful in reminding the contractor just how often you have asked him for the money!
What To Do If Subcontract Retention Isn’t Released
If the first moiety of retention is not released when requested, your system should flag this up and the account should be singled out for special attention.
Check carefully what the contract says. If you have achieved the necessary stage that triggers the release of the first moiety, the contractor is in breach of contract if he does not release it. This may sound very formal but, hey, it’s your money he is holding onto.
So remind him politely of this fact and cut through the administrative layers and speak to a decision-maker. Usually the Commercial Manager or Director. Show them your record of how many times you have asked for the money and insist politely that it is released immediately. If necessary, collect the cheque.
If the contractor does not release the first half of retention when you have put pressure on him, you should take the matter extremely seriously. It may be a sign that he is in financial difficulties and urgent action may be required.
At this stage, you may need to seek professional advice and a very useful way in which you can action your retention collection is to use our cost effective retention collection service.
Give us a call on 01773 712116 or email: email@example.com to speak to a member of our team.
Collecting The Second Moiety Of Retention
Assuming that you do collect the first moiety of retention without too much trouble, your system then needs to monitor and control the second moiety. Your system should record the date of practical completion and 6 or 12 months from this date you will reach the end of the defects liability period. Assuming you remedy any defects that have appeared in your works, you are entitled (subject to what the contract says) to be paid the second moiety of retention.
You need to bear in mind that release of the retention money to the main contractor by the employer/client will depend upon the mechanism in the main contractor’s contract with the employer/client. This may provide for the employer or his Architect or agent to inspect the works and to issue a Certificate of Making Good Defects which triggers the release of the retention. Clearly before such a certificate can be issued, any defects in the works have to be identified (usually by way of an inspection by the Architect or Employer’s Agent) and then corrected.
As every single element of the works is being inspected for defects, this will, by necessity, include the work undertaken by a number of different Specialist Sub-Contractors. Any delay in remedying defects by any of the Specialist Sub-Contractors could delay the issue of the Certificate of Making Good Defects and thereby the release of your retention money.
There are some main contractors who, by their very nature and organisational ability, will be good at, and pride themselves on, their ability to deal with defects. Similarly, there will be those contractors who will be motivated to deal swiftly and efficiently with defects in order to maintain their relationship with the employer/client.
Unfortunately there will be a number of main contractors who are dilatory and inefficient when it comes to remedying defects. They may have no ongoing relationship to maintain and be totally lacking in motivation to remedy defects.
Understand Why The Contractor Won’t Pay Retention
There is usually very little financial benefit to the main contractor in obtaining release of the retention money. After all, dealing with the process is actually costing him money in staff time etc and once he has secured the release of the money, he should, in theory, be paying it straight out again to all of his Specialist Sub-Contractors.
In theory the main contractor should immediately pay out the retention money he has received. Regrettably, one of the great weaknesses of the retention system so far as Specialist Sub-Contractors is concerned, is that it provides the contractor with a golden opportunity to receive money which he should be paying out but doesn’t. This failure to pay out may be accidental but more often than not, it is quite deliberate.
The length of time the contractor can hang on to and utilise these windfall monies to run his business, will depend upon your ability to chase him for your money. Some Specialist Sub-Contractors will not be very good at chasing their retention money and some may even write it off altogether. The contractor simply takes advantage of your generosity.
Some main contractors will only pay out if the Specialist Sub-Contractor chases him for the money. Other main contractors will deliberately set out to make it difficult for Specialist Sub-Contractors to collect their retention. There are those even less scrupulous who are known to have a system in place for writing your money into their profits after a given period has elapsed.
Let us help you to collect your retention quickly and easily.
Just give us a call on 01773 712116 or email firstname.lastname@example.org for details.
** Subject to our terms and conditions.
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