Construction clients must release £4.5bn retention money currently being withheld from contractors, urges the Building Engineering Services Association (BESA)
The BESA has supported a plea to Government to instruct construction clients to release £4.5bn currently being withheld from contractors in the form or retention payments.
BESA supported the request, which was included in a letter to the prime minister from the Construction Leadership Council (CLC), in a bid to inject much-needed money into struggling construction supply chains.
As well as the call to release retentions, the CLC also asked the government to consider suspending PAYE and CIS tax due to HMRC in April and May for construction and consultancy firms and workers, with no financial penalty. This would also help to relieve some of the immediate cash flow challenges being experienced across the sector, it said.
It has also called for all Apprenticeship Levy payments to be cancelled for the duration of the COVID-19 crisis.
BESA, which has been campaigning for reform of retention payments for more than two decades, added that speed was now of the essence as many specialist contractors were facing a rapid fall in turnover this month.
An online poll held during BESA’s daily COVID-19 update webinar revealed that 58% of firms who responded expect to invoice for just 25% or less of their usual monthly amounts at the end of April.
‘Cash is king’ in construction
BESA chief executive David Frise, said: “The current crisis has provided a sharp reminder that cash is king in this industry.
“Any measures that can get cash flowing more rapidly through supply chains will be crucial to ensure our sector can keep delivering on its promise to support essential services with vital building services.”
Since the CLC letter arrived at 10 Downing Street, the Crown Commercial Service has updated its Procurement Policy Note 2/20 ‘Supplier relief due to COVID-19’ to suggest ways that public sector clients could improve cash flow through their supply chains.
It outlines the release of retention money could be considered, but warned that it might expose clients to “inappropriate risks”. It does, however, encourage clients to set up ‘Project Bank Accounts’ and says they should pay suppliers promptly.
The CLC letter pointed out that the cash retentions routinely held against contractors can represent up to 5% of each regular payment. It acknowledged there would be some “strong opinions over this”, but were the government to direct all public sector bodies to release all retention monies held “this would inject cash at all levels of the construction supply chain”.
“The construction industry also needs clear support and recognition from the government for the essential work that it is doing, and the role it is playing in supporting public services and keeping the economy functioning,” the letter added.
Greater sympathy for SMEs
BESA also urged banks to show greater sympathy to SME firms working across construction as they were finding it hard to access business loans despite striving to keep sites operating.
Another BESA poll revealed that 97% of firms who had applied for Coronavirus Business Interruption Loans (CBILs) were still waiting for a response. “This goes to show that the process has yet to catch up with the demand,” said Frise.
The Association’s daily webinar also heard that the CBI had issued an upbeat assessment of the UK’s medium-term economic prospects. It is predicting a V-shaped recession – a steep decline followed by a rapid recovery in the second half of the year. It does not envisage a long haul recovery like the one that followed the financial crash of 2008/9.
CBI also believes there are a number of long-term benefits on the horizon including rapid growth in digital working as a result of more people being forced to work this way during the COVID-19 outbreak and a boost to plans to decarbonise the economy thanks to many lessons learned during the crisis.
