An alternative to the CCA retentions regime

This blog post has been written by Stuart Robertson, a Partner in Kensington Swan’s construction team. 

The CCA retentions regime comes into effect on 31 March 2017 – yes in 3 weeks’ time! While the Bill currently before Parliament was meant to correct the transition date (the new regime should only apply to new contracts or renewed contracts from 31 March), to that very simple amendment has been add 3 ½ pages of additional amendments. These introduce an alternative to the retentions trust regime, being the use of  insurance, a bond or a guarantee (a ‘complying instrument’). This is a significant change.

While the default position is that retentions are to be ‘held on trust’, this can be substituted by party A protecting retention moneys through a complying instrument. At that point the retentions deducted, and continuing to be deducted, from party B lose their trust status. They can be used by party A as working capital, can be invested into whatever scheme it likes, and can be taken by judgment creditors in satisfaction of debts. In a liquidation of party A the retentions will fall into the general pool of money available to pay the liquidators’ fees, debts owed to IRD and secured creditors. Party B will be left with enforcing the bond.

This is a fundamental change from the intent of the changes to the CCA. It also places party A, and potentially its directors, at risk from the instant the instrument becomes non-complying (may be due to a breach of its terms or a failure to pay part of the bond fee) the money protected by the bond becomes subject to the retentions trust regime. Party A is likely to be immediately in breach of those provisions.

Within the next three weeks Parliament is expected to pass the Bill into law and those in the construction industry are expected to have all their systems in place to either hold retentions on trust or have a complying instrument. As yet there is no word as to whether the necessary regulations for the retentions trust regime or the complying instrument will be issued in time.

One thought on “An alternative to the CCA retentions regime

  1. Pingback: Nearly There – New Retentions Regime | SITE VISIT

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s