Navigating New Retention Reporting Laws in Construction: A Guide

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8 days agoPWG Publications

Introduction to New Retention Reporting Laws

The construction industry is witnessing significant changes with the introduction of the Reporting on Payment Practices and Performance (Amendment) Regulations 2025. These new regulations, coming into force on March 1, 2025, aim to improve transparency and payment practices by requiring large companies to report on retention practices within construction contracts. This article will guide you through what construction companies need to know about these new laws.

Understanding Qualifying Companies and Contracts

To determine which companies are affected, it’s crucial to understand what constitutes a qualifying company and a qualifying contract.

Qualifying Company: A company is considered qualifying if it meets at least two of the following criteria:
Turnover: More than £36,000,000 (increasing to £54,000,000 from April 6, 2025).
Balance Sheet: More than £18,000,000 (rising to £27,000,000 from April 6, 2025).
Employees: Over 250 employees[1][4].
Qualifying Contract: These contracts are defined under the Housing Grants, Construction, and Regeneration Act 1996 and involve construction operations. This includes contracts for construction work or arranging for the supply of labor but excludes contracts with residential occupiers and those in sectors like oil and gas[1][4].

What Information Must Be Reported?

Qualifying companies must report detailed information about their retention practices:

Use of Retention Clauses: Whether retention clauses are standard practice, and if so, in what circumstances.
Maximum Contract Value: If there’s a maximum contract value below which no retention clause is used.
Standard Retention Percentage: The typical rate used in retention clauses.
Comparison to Client Contracts: Whether retention clauses used with suppliers are as onerous as those with clients.
Retentions Release Mechanism: The process for releasing retained money.
Retention Ratios: The percentage of retentions withheld from suppliers compared to those withheld by clients, and from gross payments to suppliers compared to total payments[1][3].

Importance of Compliance

The new regulations aim to enhance transparency in construction payment practices, particularly concerning retentions, which are a common point of contention. Late or withheld retentions can significantly impact the cash flow of small to medium-sized construction businesses.

Compliance is crucial because failure to report retentions information will result in sanctions similar to those for other reporting requirements[3]. However, the Department for Business and Trade encourages voluntary compliance before considering prosecution[1][4].

Impact on the Construction Industry

These changes are part of a broader effort to address late payments and improve overall payment practices in the construction sector. By requiring detailed reporting on retention practices, the government hopes to reduce disputes and encourage fairer treatment of suppliers.

Industry bodies like Build UK have been highlighting improvements in payment practices, and similar positive outcomes are expected from these new regulations. However, it remains to be seen whether these changes will lead to a decrease in the use of retention clauses or speed up their release[2][3].

Preparing for the New Requirements

Companies affected by these regulations must ensure they have systems in place to track and report on retention practices accurately. This includes:

Internal Data Systems: Developing or updating internal systems to collect relevant data on retention clauses and practices.
Reporting Templates: Preparing templates to facilitate easy reporting.
Training and Awareness: Ensuring staff understand the new reporting obligations and procedures.

Conclusion

The new retention reporting laws mark a significant shift towards transparency and fairness in the construction industry. By understanding and complying with these regulations, construction companies can not only avoid sanctions but also contribute to a healthier business environment for all stakeholders involved.

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