New research from the NFRC has revealed that roofing and cladding contractors have on average 5.8 per cent of their total turnover held in retention, which across the whole sector is equivalent to £300m of cash. This is despite industry committing to having zero retentions in less than 20 months in 2023, with 2025 at the absolute latest.
The commercial new build sector had the highest proportion of turnover tied up at 6.9 per cent, but the public sector did not perform much better, with public sector new build clients holding 6.7 per cent and public sector repair and maintenance clients holding 6 per cent of contractor's turnover.
Cashflow is extremely tight for roofing contractors currently, as the Reverse Charge VAT changes introduced in March start to restrict firms' working capital. On top of this, roofing firms are facing record material price rises, with 89 per cent of companies seeing material prices rise in the first quarter of the year, as well as soaring PI insurance premiums. Any firms who took out Bounce Back Loans will also have to start paying these back from June.
Payment is still also slow—despite 62 per cent of roofing firms having contractual payment terms of 30 days or less, only 42 per cent were paid within that period, on average. Almost one if five (18 per cent) had payment terms of 46 – 60 days.
Commenting on the research, James Talman, CEO of NFRC said:
"Our industry is being asked to build more and more but with less and less cash. It is only a matter of time before there will be a cashflow crunch, and firms will start going to the wall. This is not just a problem for roofing, but for sub-contractors across the industry—£300m is just a snapshot, and this figure is likely to be in the billions of pounds across all the trades.
"It has been widely acknowledged that cash retentions generally do not provide an appropriate or proportionate way of ensuring quality, but yet it is clear from this data that their use is still widespread—even in the public sector. There are many, much more appropriate ways of guaranteeing quality that doesn't tie up so much of a sub-contractor's working capital, yet the industry clings onto this outdated system.
"The government must set the example by removing retentions entirely from all its own contracts—as well as through any government-supported schemes such as Help-to-Buy. We need more than just high-level statements, but firm commitments. With 2023 less than 20 months away, private sector clients should start committing to zero-retentions now or at least set out their own roadmaps to getting there. We are willing to work with any clients who wish to explore alternative ways of ensuring quality in the roofing industry".