My Lords, it has been interesting and instructive for a non-expert to listen to the debate in this rather impressive Grand Committee while waiting for my sole amendment to be reached as the very last group.
Amendment 136A is a probing amendment that seeks to encourage the Government to take some long-overdue action to tackle the pernicious practice of retentions in the construction sector. I start by thanking, in his absence, the noble Lord, Lord Blencathra. He crafted this amendment in a form deemed to be in scope and then allowed my name to appear above his. I am sorry to hear that, as I gather, he has fallen prey to Covid, but I wish him a speedy recovery and I shall certainly miss his powerful support today. I am also grateful to the Minister for sparing time last week to meet me and David Frise, representing the engineering services alliance, Actuate UK, whose members are among the firms most impacted by retentions.
I shall make just three points relating to the amendment. First, retentions are a cancer affecting the construction industry, which, as noted in the Hackitt report,
“can drive poor behaviours, by putting financial strain into the supply chain”.
These can damage both quality and safety; for example, by causing subcontractors to use cheaper, substandard or unsuitable materials or to cut corners on quality in other ways. In some cases they may withdraw from contracts or even be forced out of business altogether, causing the “golden thread” which is such an important part of the thinking behind the Bill to fray, if not snap.
Retentions poison relationships between subcontractors and contractors, creating a fundamentally adversarial relationship rather than a far more productive collaborative partnership. They deprive smaller firms of funds for investment in skills, technology, growth and productivity, while causing them to waste substantial time and effort chasing payments which are due to them, but which in some cases are never paid at all—notably when the business owing them goes bust, as in the case of Carillion. Retentions are not even a particularly effective way of preventing or remedying defects; the sector has been developing much better approaches, such as modern methods of construction and the Get It Right Initiative. I salute the Minister’s evident commitment to improving the quality and culture of the construction sector, but that aim will never be achieved while unregulated retentions persist.
My second point relates to the need for legislation. There is a high degree of consensus across the sector that something needs to be done about retentions, and there is even a target date, endorsed by the Construction Leadership Council, for there to be zero retentions by 2025. That is a laudable goal, but, as Ministers regularly point out, there is no industry consensus about how to reach it. Of course there is no consensus between firms that benefit from withholding retentions, often using them to artificially boost their own working capital, and those who are deprived of funds due to them. So we have a stalemate that can only be resolved by government through legislation, whether primary or secondary.
7.45 pm
Thirdly, the Bill provides the right opportunity for government to act—or at least to set a process of action in place, which is what this amendment rather modestly seeks to initiate. It would require the Secretary of State, within 12 months of the Bill becoming law, to publish a review of the impact of retentions on building safety and standards. Such a review would inevitably make crystal clear the damaging impact of retentions in ways set out in the amendment: cash flow difficulties for subcontractors, their inability to afford materials of suitable quality, their inability to recruit and train staff with the right levels of competence, and other ways in which retentions harm safety or quality, including situations where subcontractors are unable to complete work that they are contracted for.
I would like to see a much stronger amendment, requiring specific action by government to finally tackle the issue of retentions, following the safety review that the amendment requires, either by banning them outright or at least by ensuring that they are ring-fenced so that subcontractors can rely on their funds not being lost. This might take the form of regulations made under the provisions of Clause 138, accompanied by guidance to the building safety regulator, along with appropriate enforcement powers. Such an amendment might possibly be suitable for tabling on Report.
Meanwhile, I would like to hear the Minister—whose commitment to shaking up the culture of the construction sector to achieve a much higher level of collaboration, quality and safety I greatly welcome and admire—tell us that, after all the years of government reports,
reviews and consultations, he will be the Minister who finally slays the dragon of retentions, putting St Stephen up there with St George. At the very least, he should be looking at actions such as updating the Construction Playbook to discourage retentions and ensuring that both the playbook and his department’s Procurement Advisory Group’s Guidance on Collaborative Procurement for Design and Construction to Support Building Safety are actually taken up and complied with by the sector.
Having spent most of my education studying Latin and Greek, I have been deeply embarrassed during this debate by my inability to find a suitable Latin or Greek quotation to match those quoted by many noble Lords. The only one that I could come up with was “Nil desperandum”, or “Never despair”. Many small construction firms do despair at how retentions hamstring them from achieving the performance that they aspire to, in terms of quality, safety and productivity. I cannot say that I expect the Minister to answer their prayers today, but I can of course say, “Dum spiro spero”—while there is life there is hope. I beg to move.