The UK’s top 12 construction companies are collectively owed over £1 billion of cash retentions, with a large percentage of this having a direct impact on SMEs in their supply chains, according to new figures.

An analysis of the accounts of the firms, carried out for construction representative body the Specialist Engineering Contractors’ Group (SEC Group), has revealed that the nine companies which published separate figures for retentions are owed more than £800 million, indicating that the 12 together are owed over £1bn of cash retentions.

Over 80% of this sum – in excess of £0.8bn – would have comprised the retentions withheld by these companies from their supply chains, the overwhelming majority of whom would have been SMEs.

One contractor’s accounts showed that it was holding a retention amount against its supply chain that was significantly greater than the amount withheld against it by its clients.

Professor Rudi Klein, SEC Group’s CEO, said that the analysis was extremely timely given that publication of a UK government review of the retentions system was imminent.

He added: “There is no other industry sector in the UK where such a large amount of cash is at risk especially for SMEs. By the time these monies are released back to SMEs in the supply chain some years would have elapsed. In a high proportion of cases the retention represents the profit element for SMEs.”

SEC Group estimates that £0.4bn would have been held by public sector bodies. In this case the retentions provided by the top contractors would not be at risk (since public bodies do not go into insolvency), but there is still a significant risk for the SMEs lower down the supply chain.

SEC Group has been urging the government to introduce legislation to protect or ring-fence cash retentions to remove the insolvency risk and to ensure that retentions are released on time. Such legislation already exists in parts of Europe, Australasia and North America.