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Call for local authorities to protect supply chain retention funds

27 July 2018

Following the favourable response from MPs to back the drive to place retention funds in ring-fenced accounts, local authorities are now being asked to support this in their supply chains.

Reasons for this were presented by the Specialist Engineering Contractors' (SEC) Group, as it shared the results of a survey of English local authorities.

Data gathered through the Freedom of Information Act showed the lack of both best practice guidance and oversight of payment performance along the supply chain from local authorities.

Other findings from the survey included the fact that 77% of local authorities deduct a 5% cash retention, with 16% deducting more than this figure.

Cash retentions are used to bolster the working capital of 53% of councils, with 6% investing them in overnight market markets.

While 22% of councils do not deduct retentions, only 1.5% insist that their main contractors follow suit.

No contractual requirements are passed to main suppliers by 80% of councils and no checks are made on whether main contractors are releasing retention funds to their supply chain.

More than 62% of councils failed to comply with legislation requiring 30-day payment terms to be included in supply chain contracts, which also requires the payment of retentions to be paid in the same time frame when they become due.

Just 12% of councils were seen to be reporting on 30-day payments for subcontractors.

SEC Group is asking the government to strengthen the Public Contract Regulations by making it a statutory requirement that all suppliers are paid within 30 days on public sector projects.

Public bodies should also have the option to make direct payments to subcontractors.

A yellow and red card system should also be implemented, says SEC, with companies barred from public sector work for up to three years if they fail to heed warnings to pay their supply chain on time.

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