The UK Government’s proposed move to ban cash retentions is a welcome development for the construction industry. It reflects a clear intention to improve cash flow, promote fair payment practices, and strengthen supply chain stability.

However, it is important to understand what this change represents.

This is not the removal of performance security. It is a shift away from withholding cash as a mechanism.

Retentions have historically provided Employers with comfort against non-performance and defects. Their removal does not eliminate that requirement. It requires it to be addressed through more structured and transparent contractual arrangements.

What will replace retentions?

In practice, we are likely to see greater use of:

• Retention bonds and performance bonds
• Parent company guarantees
• More defined defects liability and compliance provisions
• Strengthened certification and completion processes

These are well-established mechanisms. When applied proportionately, they can provide effective protection while allowing Contractors to maintain healthy cash flow.

What should the industry be mindful of?

There are a number of practical considerations:

• Cost of security
• Bonds carry a cost, which will typically be reflected in tender pricing. In many cases, this will be borne by the Employer through the overall contract sum.
• Bond terms and conditions
• The drafting of bonds will be critical. Clear, proportionate, and well-defined call provisions will reduce ambiguity and support fair risk allocation.
• Market capacity
• Access to bonding may vary across the supply chain. Early engagement and realistic requirements will help maintain competition and delivery capability.

A balanced approach is essential

From a contractual perspective:

For Employers and Clients

• Security provisions should be proportionate to the risk profile of the project
• Overly onerous requirements may increase cost and affect market appetite
• Greater emphasis should be placed on robust contract administration, inspection, and certification

For Contractors and the Supply Chain

• Improved cash flow is a clear benefit
• Consideration should be given to the cost and obligations associated with alternative security
• Early review of contract terms is essential to understand and manage exposure

Industry perspective

This reform is a positive step forward.

It creates an opportunity to:

• Improve payment practices
• Enhance supply chain resilience
• Deliver projects with greater commercial transparency

The focus now should be on careful drafting, proportionate security, and balanced risk allocation.

If implemented well, this change will support better project outcomes. If not, there is a risk of simply shifting pressure into different contractual mechanisms.

Organisations should take this opportunity to review their contracts and ensure they are aligned with both the intent and practical realities of the proposed changes.

For those requiring structured support in reviewing or implementing these changes, QTC remains available to assist.