NEC Annual Conference – Industry Challenged on the use of Retention Funds in NEC contracts

The Construction Leadership Council (CLC) welcomed attendance at the recent NEC Annual Conference which celebrated the 30th Anniversary of the NEC, featuring presentations showcasing key case studies, whilst also looking ahead to the future. As part of this event a workshop was hosted on NEC contracts and the use of retention funds, facilitated by Steve Bratt (CLC’s Business Models and Fair Payment Workstream lead), Peter Higgins (Chairman of the NEC4 Contract Board), Claire King (Fenwick Elliott LLP) and Andrew Croft (Beale & Company Solicitors LLP).

In November 2022, the CLC in collaboration with NEC published joint guidance to industry on the use of retention clauses under NEC3 and NEC4 Engineering and Construct Contracts, and sub-contracts.

The workshop explored this guidance on how NEC contract suites deal with defective work and retentions, and to explain that a retention fund may not, in fact, be needed.

As part of the interactive session participants reflected on the industry norm to include the use of retention funds in their contracts, the significant list of disadvantages of the use of these funds vs advantages, and feasible alternatives if security is required.

The workshop message was clear. Focus should now be on challenging the industry norm – Option X16 in NEC Contracts should not be automatically included. If you have a well selected supply chain, a collaborative contract and good management of that contract then a retention fund should not be required.

Commenting on the workshop, Steve Bratt, Chair of the CLC’s Business Models and Fair Payments Workstream said:

“It was great to have an active and informed discussion on this subject with experienced users of NEC contracts.  What was particularly pleasing was the clarity and strength of feeling that a collaborative approach was the way forward and in the vast majority of cases there should be no need for retentions.  This aligns very well with the CLC’s retentions reform agenda.”

Peter Higgins, Chairman of the NEC4 Contract Board said:

“The NEC4 Contract Board uses feedback from workshops such as this to assess how the contract is being used and what users think of it. Some valuable insights were gained into user’s views of the benefits and disbenefits of retention funds, and a discussion on security of retention funds against insolvency was particularly useful.”


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