The Construction Leadership Council (CLC) and NEC has published guidance 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.”
Peter Higgins, chairman of the NEC4 Contract Board, added: “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 CLC 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.”
