RETENTIONS – THE FACTS
Do You Know That……?
Contract Retentions Average 5% of Contract Value
71% of Contractors Find Retentions are Never Paid on Time
>50% of Contractors Never Get Paid Retentions At All
Why Do Retentions Remain Unpaid?
Disputes over defects (valid or otherwise)
Insolvency of main contractor
Directors who DON’T even try to recover!
Why Do Directors Write Off Retentions?
Many contractors inflate the tender price in anticipation that the retention will never be paid
Directors want repeat business and won’t risk upsetting relationships by chasing retentions
Source: Pye Tait Consulting report to the Department for Business Energy + Industrial Strategy (Oct 17)
Do You Recognise This Situation as an IP?
You are appointed to a sub-contractor with a retentions ledger and you’re faced with the directors who are advising you that they have done everything they can and what’s left isn’t worth pursuing. You have limited resources and there are more easily realisable assets that will bring a quick return to creditors. Do you take the directors’ advice but just to protect yourself, get a junior to send a quick letter to see if any of the contractors responds? You get no responses.
CRS Advice to IPs on Retentions
Taking a directors assessment at face value could result in a worse outcome for creditors especially when a director’s view maybe motivated by a desire to secure a relationship both in the past and in the future. The IP doesn’t and shouldn’t have to worry about having to maintain a relationship with the contractor.
If the contract price factors in an assumption of not recovering the retention, that doesn’t mean the IP shouldn’t pursue a claim. The Directors may take the view that they have recovered what they anticipated but the IP still has a legal claim against the contractor which the IP has a duty to pursue.
Directors can also be shy about chasing a disputed retention, even if they disagree with the dispute, for one of the reasons already discussed. However, an IP is a free agent to challenge the dispute and should do so where the claim is spurious or with little merit.
Assessing the quantum of a retention and its likely recovery is not an easy task. Knowing the contractual obligations of both parties is key, as is a measured assessment of any defects. This isn’t something that should be delegated to a junior member of the IP’s team but can only realistically be determined by a Quantity Surveyor. This is where CRS can offer No Win No Fee recovery on retentions or indeed other completed and part completed contracts.
Unpaid retentions also impact negatively on struggling construction and contract businesses. With professional help cash flow can be improved by converting overdue retentions into cash. So CRS can help with both advisory as well as formal insolvency assignments.