The Construction Leadership Council (CLC) in collaboration with NEC has today published joint guidance to industry on the use of retention clauses under NEC3 and NEC4 Engineering and Construct Contracts (ECC), and sub-contracts.
The publication explains how NEC contract suites deal with defective work and retentions, and to explain that a retention fund may not, in fact, be needed.
The contractual practice of retention payments is intended to provide security against defective work, and the insolvency of businesses in the construction supply chain. The principle is to secure performance and incentivise the elimination of defects in an industry where the quality of work remains inconsistent. However, they can create problems for businesses throughout the supply chain due to the late and non-payment of retentions or through upstream insolvency.
This work forms part of the CLC ambition of moving to zero retentions by 2025, through reducing or eliminating defective construction work and having a procurement and delivery model that recognises, incentivises and rewards consistent high-quality work.
Commenting on today’s publication, Steve Bratt, Chair of the CLC’s Business Models Workstream said:
“The long-term aim is to eliminate the need for retentions altogether. This guidance illustrates that often the need for retentions can be avoided through good contract management and selection of contractors with a good track record of quality work.”
“I would like to thank the NEC Board for their collaborative approach to working with CLC colleagues on this longstanding, contractual issue.”
Speaking on behalf of the finishes and interiors sector, FIS CEO, Iain McIlwee stated:
“This is welcome and definitely a step in the right direction. The retentions debate has raged for decades and progress has been slow at best, but the world is changing rapidly and we cannot let past procrastination dampen our ardour to deliver change. It is widely agreed now that retentions contribute towards many of the negative behaviours in the sector. The Retentions Roadmap outlines a voluntary phased approach to moving towards the objective of zero retentions by 2023, clearly this is unlikely now, but no later than 2025 has to remain as an achievable goal. If we want genuine transformation, we need to be bold. I would urge JCT, which tends to be the more common contract in our sector, to take similar steps in the immediate future.”
Peter Higgins, Chairman of the NEC4 Contract Board said:
“The construction industry has traditionally thought of a retention fund as a necessary and inevitable part of the cost of doing business, but NEC contracts took a different approach, treating retentions as an option to be used only if necessary. NEC is pleased to have worked with the Construction Leadership Council in preparing this guidance on the use of retentions under NEC contracts, and in particular highlighting when holding a retention fund creates an unnecessary expense for contracting parties.“
The guidance is available to download here.
A free webinar to support the new guidance and an opportunity to learn more is scheduled for Monday 16 January 2023 at 2pm.
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Both CLC and NEC would like to thank all those that participated in the development of this guidance, in particular, Peter Higgins of PD Consult on behalf of NEC, and Andrew Croft of Beale & Company Solicitors LLP and Claire King of Fenwick Elliott LLP on behalf of CLC.