The UK Retention Deposit Scheme ('UKRDS') has today confirmed its formal submission to the Department for Business & Trade ('DBT') consultation on tackling poor payment practices in construction. The move comes as policymakers consider far-reaching reforms to address endemic issues around late payment and upstream insolvency, particularly in relation to cash retentions.
The UK Retention Deposit Scheme, launched in January 2025, offers a market-tested, FCA-regulated solution to the very problems the Government consultation seeks to address. It safeguards retention funds in independent, transparent, and secure accounts, eliminating the risk of insolvency loss and unjustified withholding while preserving employers' legitimate rights to withhold for defects.
As the Government weighs whether to prohibit or protect retentions, the UKRDS response makes the case for proportionate reform: “Protection, not prohibition.”
Over £4.5 billion is withheld in retentions across the UK construction sector each year. While originally intended to incentivise quality and provide recourse for defects, in practice retentions have become a source of serious financial strain for SMEs. According to Government-backed research, 44% of contractors have lost retention funds due to upstream insolvency, and over 70% have experienced late or non-payment.
Retentions are often withheld without justification, delayed well beyond agreed periods, or lost entirely when employers or tier-one contractors collapse. With construction margins already under pressure, this misuse of retentions can represent the difference between solvency and insolvency for smaller firms.
The Government’s consultation rightly identifies these issues as systemic. But UKRDS warns that abolishing retentions outright would drive the problem underground.
Our submission argues that banning retentions entirely would not solve the underlying issues, and may even make them worse. In the absence of formal retentions, employers may respond by undervaluing interim payments or tightening the criteria for practical completion. These alternative behaviours are harder to monitor and regulate, but have the same net effect: withholding money from the supply chain.
Moreover, alternative instruments such as insurance or performance bonds are costly, slow to pay out, and impractical for smaller projects. Rather than replace retentions, the UKRDS proposes that they be properly safeguarded - ensuring the funds remain available when due, without imposing additional cost or bureaucracy.
The UK Retention Deposit Scheme provides the very protection the Government is seeking to introduce. Regulated by the FCA and operated by an authorised payment institution, UKRDS safeguards all deposited funds at the Bank of England. Each project has its own uniquely addressed account, with sort code and account number, ensuring full transparency and auditability.
Once a payment certificate is uploaded, funds can be released automatically or by adjudicator instruction, meaning retentions are paid promptly when due. For contractors and subcontractors, this eliminates the need to chase payments; for employers, it ensures legitimate defects can still be rectified.
Critically, the Scheme has been designed to operate at low or zero cost. When the Bank of England base rate is at or above 3.75%, UKRDS operates without charge. In lower-rate environments, the only cost is a modest monthly fee of £25 per contract per month.
UKRDS has recommended a blended legislative model, combining prohibition and protection in a proportionate way. Under the proposal:
This structure ensures SMEs are shielded from unnecessary risk, while maintaining a level playing field for employers seeking protection against defective works. It also allows the supply chain to plan with certainty, knowing that retention funds are ring-fenced and accessible when due.
The Scheme’s submission concludes with a call to action. With a functioning, tested, and regulated solution already in place, the Government has a unique opportunity to legislate with confidence. By mandating retention protection via trusted custodians, the sector could eliminate the scourge of lost and delayed retentions overnight.
"We are ready to support Government, employers, and contractors in embedding fairer, safer payment practices," a spokesperson for the Scheme commented. "The infrastructure is in place, the regulation is robust, and the need has never been clearer."
As consultation responses are reviewed, UKRDS continues to offer live demonstrations to policymakers, industry groups, and procurement bodies.
For more information or to schedule a demonstration, visit: https://www.retentiondepositscheme.org
You can view the online version of our submission here: https://www.retentiondepositscheme.org/dbt-retentions-consultation-2025
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We don't lend, invest or leverage your retentions. We simply hold all deposits in full and unencumbered at the Bank of England, always keeping them fully available on demand.
Retentions are safeguarded and protected from the trading activities of any underlying bank, meaning that even if the worst happens to a bank, or there is a run on its funds, or even if anything happens to us, your retentions are 100% secure.