The construction sector, government and the wider UK population are reeling following Carillion’s liquidation in January. But at the same time, nobody in the sector is that surprised that a large main contractor has gone under.
Government is working with trade associations like BCSA to make sure subcontractors are informed, and to determine the immediate next steps as this particular mess is mopped up. Clients are working with the liquidator to get construction jobs started again and subcontractors, including steelwork contractors, are ready to make sure that the cranes on building sites across the country are working once more.
The calls for reform in the construction sector are welcome, and I’ve written about these issues before. The solutions include rigorous enforcement of payment terms, getting rid of supply chain financing that can leave subcontractors out on a limb, and dealing with retentions once and for all.
It’s ironic that Carillion’s demise happened during the government’s consultation period on retentions. I strongly support mandatory ring-fencing of retentions and the private members bill that supports this, as well as the longer term abolition of retentions.
However, legislation takes time, so isn’t there more than government can do right now to protect subcontractors’ money?
The only Carillion subcontractors that are in the clear post liquidation are those that had valid credit insurance (expensive and not always available) and those that were working on projects with Project Bank Accounts (PBAs). The money in these PBAs is ring-fenced and the liquidator has no right to the monies in them that are owed to subcontractors.
Governments in England, Scotland and Wales have already mandated PBAs for central government contracts. This didn’t need any legislation, just the collective will to protect the supply chain on construction projects paid for by the taxpayer.
So why can’t it be thus for cash retentions? BCSA is calling for governments across the UK to first and foremost ban the use of cash retentions on all government funded projects, throughout the whole supply chain. This should be done for all central government and government agency projects that are currently being let, quickly followed by local government projects.
In addition, government should mandate the ring-fencing of cash retentions for ongoing works where the cash is currently sitting in main contractors’ bank accounts. As we all know now after Carillion, this is the worst place it could possibly be.
This is a simple step and will show the rest of the sector how straightforward protecting subcontractors’ monies is. And then we can all get on with the job of legislating for ring-fencing of cash retentions across the board before retentions are abolished, by law altogether.