In 2015 an array of amendments was made to the Construction Contracts Act 2002 (CCA), to be implemented in three stages, namely on 1 December 2015, 1 September 2016, and 31 March 2017.
Stage 3 amendments
On 31 March 2017 the new retentions regime for constructions contracts came into force, which requires the payer to hold retentions on trust for the payee – the parties cannot contract out of this requirement.
The purpose of the new regime is to provide greater certainty of payment for contractors and subcontractors that are owed retention money for work completed, and to also ensure that the money held is managed responsibly. In respect of the latter, if money is not managed responsibly then directors could be implicated personally, and penalised accordingly.
So what does the new regime mean? In short, from 31 March 2017:
All new and any renewed commercial contracts will be subject to the changes. There are no regulations which set a minimum threshold, so all retentions are caught under the regime.
Existing contracts (entered into pre 31 March 2017) are not caught by the new regime.
Retentions or ‘retention money’ means an amount withheld by a party to a construction contract (Party A), from an amount payable to another party to the contract (Party B), as security for the performance of party B’s obligations under the contract.
Party A is to hold the retentions ‘on trust’ in the form of cash or other liquid assets readily converted into cash. Party A may intermingle the retentions with other funds – i.e. no need for a separate trust account.
Alternatively, Party A can obtain a financial instrument such as insurance, a bond, or a guarantee to provide protection of payment of retention money.
With either option, Party A is obliged to keep proper accounting records, and Party B is entitled to inspect those records at all reasonable times and without charge.
If you’d like to know more about the Stage 1 or 2 amendments follow this link.
For specific advice on the changes to the CCA and how they affect your work and potential liability contact commercial lawyers Richard Kettelwell, James Hakaria or Sophie Harrigan.