Government shows no sign of backing down on retentions ban

Lords voice concerns but government holds firm

The Commercial Payments Bill, which we recently discussed in this article, has now completed the House of Lords committee stage. The government’s position remains substantially unchanged, with the Bill still including a phased ban on retention clauses in the construction sector. No amendments have been made that introduce carve-outs or otherwise soften the core policy. 

Peers pressed the government on whether retentions should be preserved, at least in some limited form, to protect employers against defects and poor-quality work. Lord Leong (a minister within the Department for Business and Trade) made it clear during the debate that the government continues to regard retentions as an ineffective and problematic quality assurance mechanism. 

He also confirmed that the government does not intend to either introduce exceptions to the ban or to permit retentions to continue in another form. Instead, he said that the industry should move towards alternative forms of protection, noting that nothing in the legislation will prohibit staged or interim payments nor will it ban payment arrangements through third party providers such as banks, payment agents, or escrow providers. 

The wider payment framework also remains unchanged, with the Bill still structured around a 30-day maximum period for public authorities and a 60-day maximum for non-public authorities. 

Developers should therefore continue to plan on the assumption that retentions will be prohibited, and should begin considering replacement protections, payment terms, and/or supply-chain risk allocation.