At the beginning of this year the Construction (Retention Deposit Schemes) Bill 2017-19 had its first 10 minute reading in the House of Commons. Our previous article " Construction (Retention Deposit Schemes): a step in the right direction" covers the details.
The second reading of the Construction (Retention Deposit Schemes) Bill 2017–19 has been delayed until 15 June 2018, in the meantime, the Bill was published.
The purpose of the Construction (Retention Deposit Schemes) Bill is to ring-fence retention money in the event of any issues arising, such as insolvency
The Bill would add new sections 111A and 111B to the Housing Grants, Construction and Regeneration Act 1996 ("Construction Act 1996").
Retention Deposit Schemes (s 111A)
The proposed section 111A of the Construction Act 1996 (clause 1 of the Bill) would require the relevant national authority, by regulation, to make arrangements for ensuring that at least one or more retention deposit scheme(s) is available for the purpose of safeguarding any cash retentions.
The proposed section defines a 'retention deposit scheme' as a compliant scheme designed to protect cash retentions withheld in connection with construction contracts and facilitating the resolution of disputes.
The definition of a 'construction contract' has been expanded from the existing definition under section 104 of the Construction Act 1996, to include: 'any contract created to have a similar effect to a construction contract for the purposes of withholding monies which would otherwise be due under the contract'.
'Cash retentions' is defined as monies which are withheld which would otherwise be due under a construction contract, the effect of which is to provide the payer with security for the current and future performance by the payee of any or all of the latter's obligations under the contract.
The proposed regulations are to particularly provide for:
- the selection and appointment of a scheme administrator;
- funding and management of a retention deposit scheme; and
- the mechanism by which retention deposits are released.
Retention Deposit Schemes: Contractual requirements (s 111B)
The proposed section 111B of the Construction Act 1996 (clause 2 of the Bill) would not come into force immediately but on a date to be decided.
The proposed section states that for any construction contracts entered into after section 111A of the Bill has been passed, where the contract includes cash retention clauses, those clauses will only be valid if:
- monies are deposited in a retention deposit scheme as defined in section 111A;
- prior to the first withholding, the payer notifies the payee of the scheme administrator's details and vice versa
Once the Bill is enacted, every construction contract will require the cash retention to be placed in a compliant retention scheme, and for the payer to notify the payee and the scheme administrator of the other's details. The retention must be returned to the payee within seven working days if this is not done.
Members of Parliament will have the opportunity on 15 June to debate and agree or reject the Bill in principle. Following the collapse of Carillion, this Bill has wide support from across the industry given the risks associated with current practice.
The quiet revolution continues.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
