Contribution
My Lords, first, I thank the noble Lords, Lord Sharpe and Lord Hunt, for the amendments in this group.
I will take Amendment 22 first. I reassure the noble Lords that the Bill does not prevent parties in any sector, including construction firms, making use of payment arrangements through a bank or an escrow provider to facilitate the transfer of funds. The important distinction is between a third party facilitating payment of money that is due and a third party holding back that money as security for the supplier’s performance. The former remains permitted, the latter could amount to a retention and would therefore fall within the prohibition. Therefore, Amendment 22 is unnecessary.
The Government’s view, shared by many in the industry, is that construction should move away from cash retentions and towards modern, more secure and equitable forms of surety. We know that there are alternative forms of surety, including performance and retention bonds, already available in the UK which can mitigate risks for clients and firms. There are also alternatives used in other countries, such as warranty bonds, which are very common in Europe and are available in the UK. We will be working with surety providers to ensure that a range of alternatives is available when the ban comes into force.
In relation to Amendment 23, I reassure noble Lords that the Bill does not prescribe when stages or milestones must occur or prevent parties from agreeing interim valuations and payments. It regulates the period within which an amount must be paid once that payment becomes due. Genuine staged and interim payment arrangements will therefore remain entirely permissible. However, describing a withholding of money for work already completed and where payment is due as a staged payment would not prevent it falling within the prohibition on retention if, in substance, the money was being retained as security for the performance of contractual obligations.
The right for firms to be paid in staged payments on projects lasting more than 45 days is already enshrined in Section 107(2) of the Housing Grants, Construction and Regeneration Act 1996. The Bill does not amend, qualify or undermine that right. Therefore, this amendment is unnecessary. In implementing the provisions of the Bill, the Government will engage directly and closely with construction industry clients, specialist providers and representatives of smaller firms to provide guidance that legitimate payment arrangements can continue while preventing contractual devices being used to recreate cash retentions under another name.
On Amendment 24, we recognise the understandable intention that resident-led and resident-owned companies should have assurance that building work is completed properly and of high quality, and that defects are remedied without additional costs falling on leaseholders. We do not believe that retentions ensure this. To agree to this amendment would create a broad exemption for construction contracts entered into by resident management and right-to-manage companies. That would leave firms working on those buildings exposed to the risks associated with cash retentions. It could also create uncertainty where different ownership and management structures exist within the same building or development.
In addition, the process required by the Building Safety Act 2022 for delivering work on high-risk building places an emphasis on safety and quality. It includes numerous gateways, information requirements and independent reviews of the building. If clients and firms in their supply chain are meeting the requirements of the Act, there should be no need to deduct retentions. As Dame Judith Hackitt has noted, retentions are ineffective and undermine the effectiveness of the supply chain, which is why alternatives are required. For this legislation to be effective, it must incentivise the industry and its clients to end the practice of cash retentions and to adopt alternative forms of surety, together with improved quality management.
Finally, I address the request made by a number of noble Lords in Committee for further information about the work to develop alternatives to retention. The Construction Leadership Council has now appointed a new industry lead for this area, and we will be increasing our engagement with stakeholders across the industry in relation to alternative forms of surety and quality improvement from September. This will give us plenty of time to address those issues in advance of the introduction of the proposed ban.