15-04-2009
Contractors should retrieve retention monies, says BPE partner
Construction lawyers at BPE Solicitors in Cheltenham have been surprised to learn that contractors are giving up the chance to recover retention monies, despite having a clear legal entitlement to claim for them.
Within the construction industry it is standard practice to keep back a percentage of the contract price until a project is complete, to ensure contractual obligations have been fulfilled.
Many contractors, however, appear to be willing to write off such retention monies as bad debt and not necessarily on valid tax grounds.
BPE Construction Partner Jon Close is convinced that the prime reason is the perceived cost of recovery, as he explains:
“Some retention sums can be quite modest and contractors believe that the cost of instructing a lawyer to retrieve them will outweigh what they eventually end up with.”
“But with conditional fee arrangements, percentage recovery and after-the-event insurance just some of the finance options that are now readily available, this is rarely the case.”
Jon concedes that contractors may also be deterred from seeking to recover monies owed to them, for fear of losing further promised work, but urges business owners to consider the bigger picture.
“At a time when cash flow is of vital importance it is not sustainable for contractors to go from one project to the next without being paid the retention monies they are entitled to.”
BPE recently secured retention sums owing to a local formwork contractor from a Midlands Plc, 18 months earlier than anticipated.
Reflecting on the success, Jon attributes the win to the client’s willingness not to back down when faced with overwhelming commercial pressure.
“If clients are prepared to put their faith in the system and take a robust stance, we are confident we can place them in a better position financially than if they had simply chosen to lie down and relinquish their rights to the sums owing,” concludes Jon.
Within the construction industry it is standard practice to keep back a percentage of the contract price until a project is complete, to ensure contractual obligations have been fulfilled.
Many contractors, however, appear to be willing to write off such retention monies as bad debt and not necessarily on valid tax grounds.
BPE Construction Partner Jon Close is convinced that the prime reason is the perceived cost of recovery, as he explains:
“Some retention sums can be quite modest and contractors believe that the cost of instructing a lawyer to retrieve them will outweigh what they eventually end up with.”
“But with conditional fee arrangements, percentage recovery and after-the-event insurance just some of the finance options that are now readily available, this is rarely the case.”
Jon concedes that contractors may also be deterred from seeking to recover monies owed to them, for fear of losing further promised work, but urges business owners to consider the bigger picture.
“At a time when cash flow is of vital importance it is not sustainable for contractors to go from one project to the next without being paid the retention monies they are entitled to.”
BPE recently secured retention sums owing to a local formwork contractor from a Midlands Plc, 18 months earlier than anticipated.
Reflecting on the success, Jon attributes the win to the client’s willingness not to back down when faced with overwhelming commercial pressure.
“If clients are prepared to put their faith in the system and take a robust stance, we are confident we can place them in a better position financially than if they had simply chosen to lie down and relinquish their rights to the sums owing,” concludes Jon.
