The AICA's adjudicators were asked how many retentions disputes had been referred to them and the degree of success for the payee. Forty-eight adjudicators responded, 35 of whom reported that over the period 1 August 2002 to 31 July 2003 they had not dealt with any disputes concerning non-payment or late payment of retentions. One adjudicator, with experience of almost 100 cases, commented that he had never had a dispute where retention was a major issue.
There could be a number of reasons for this: W
- Disputes over non-release of retentions are being subsumed under broader issues, such as set-off and final account disputes.
- Outstanding retentions often involve small sums so adjudication may not be cost-effective.
- Some firms assume that there is little they can do (contractually or legally) to get their retentions back.
One adjudicator reported that retentions disputes were usually settled before or on the issue of a notice of adjudication. Another adjudicator, after acknowledging that retentions abuse was widespread, explained that some firms were unwilling to take action because this could prejudice their chances of getting the next job.
The 13 adjudicators who had received referrals of disputes on retentions declared that most of the disputes – 50 out of 54 – were between a main contractor and a subcontractor.
Forty-six out of these 50 referrals led to a decision by the adjudicator and, of these, 40 were in favour of the subcontractor. This success rate reinforces the point made by one adjudicator that, generally, spurious reasons are given for a failure to release retentions.
It is often difficult to know with certainty whether the release of retentions is, in fact, late
The release of retentions is generally made dependent on the operation of some main contract mechanism (for example, the issue of a Certificate of Practical Completion or a Certificate of Making Good Defects). Most subcontractors do not know when or whether the relevant mechanism has been operated. As a result it is often difficult to know with certainty whether the release of retentions is, in fact, late. If the relevant mechanism has not been operated, the subcontractor is faced with the prospect of not obtaining the release of its retentions at all (even where there is no default on his part). In these circumstances, it is questionable whether the mechanism in question constitutes an "adequate" one, and therefore whether it complies with the Construction Act.
Three adjudicators reported that this point had been argued before them. These three had received, in total, 11 referrals from subcontractors and had decided 10 of those referrals in favour of the subcontractor. In four of those decisions the adjudicator found that the retentions provisions did not constitute an "adequate mechanism" for payment. In such circumstances, the Scheme for Construction Contracts enables retentions to be released within a period linked to the completion of the subcontract works.
If, as many adjudicators in the survey suggested, most retention disputes are resolved before notice of adjudication is given, then it seems adjudication remains a potent deterrent to the withholding of retentions. But for firms that are the victims of retentions abuse, the overall message is encouraging. Using adjudication to recover outstanding retentions is highly likely to lead to a positive result.
Rudi Klein is a barrister and chief executive of the Specialist Engineering Contractors Group. His handbook on using the Construction Act to recover outstanding retentions can be obtained by calling HVCA Publications on 01768-860405.