Cynulliad Cenedlaethol Cymru

Yn ôl i Chwilio

Pwyllgor yr Economi, Seilwaith a Sgiliau

Economy, Infrastructure and Skills Committee

17/10/2019

Aelodau'r Pwyllgor a oedd yn bresennol

Committee Members in Attendance

Alun Davies AC Aelod o'r Pwyllgor Cyllid
Member of the Finance Committee
Hefin David AC Aelod o'r Pwyllgor Economi, Seilwaith a Sgiliau
Member of the Economy, Infrastructure and Skills Committee
Joyce Watson AC Aelod o'r Pwyllgor Economi, Seilwaith a Sgiliau
Member of the Economy, Infrastructure and Skills Committee
Llyr Gruffydd AC Cadeirydd y Pwyllgor Cyllid
Chair of the Finance Committee
Mark Reckless AC Aelod o'r Pwyllgor Cyllid
Member of the Finance Committee
Mike Hedges AC Aelod o'r Pwyllgor Cyllid
Member of the Finance Committee
Mohammad Asghar AC Aelod o'r Pwyllgor Economi, Seilwaith a Sgiliau
Member of the Economy, Infrastructure and Skills Committee
Nick Ramsay AC Aelod o'r Pwyllgor Cyllid
Member of the Finance Committee
Russell George AC Cadeirydd y Pwyllgor Economi, Seilwaith a Sgiliau
Chair of the Economy, Infrastructure and Skills Committee
Rhun ap Iorwerth AC Aelod o'r Pwyllgor Cyllid
Member of the Finance Committee
Vikki Howells AC Aelod o'r Pwyllgor Economi, Seilwaith a Sgiliau
Member of the Finance Committee

Y rhai eraill a oedd yn bresennol

Others in Attendance

Catherine Griffith-Williams Swyddog Gweithredol Cenedlaethol Cymru, Grŵp SEC
National Executive Officer for Wales, SEC Group
Ifan Glyn Uwch-gyfarwyddwr Hyb/Cyfarwyddwr Cymru, Ffederasiwn y Meistr Adeiladwyr
Senior Hub Director/Wales Director, Federation of Master Builders
Kyle Spiller MCIOB, Cyfarwyddwr SAM Drylines Ltd (yn cynrychioli Sefydliad Adeiladu Siartredig Cymru)
MCIOB, Director of SAM Drylining Ltd (representing Chartered Institute of Building Wales)
Yr Athro Rudi Klein Bargyfreithiwr, Pennaeth y Grŵp Contractwyr Peirianneg Arbenigol (SEC)
Barrister, Head of Specialist Engineering Contractors (SEC) Group

Swyddogion Cynulliad Cenedlaethol Cymru a oedd yn bresennol

National Assembly for Wales Officials in Attendance

Leanne Hatcher Clerc
Clerk
Owen Holzinger Ymchwilydd
Researcher
Sam Mason Cynghorydd Cyfreithiol
Legal Adviser

Cofnodir y trafodion yn yr iaith y llefarwyd hwy ynddi yn y pwyllgor. Yn ogystal, cynhwysir trawsgrifiad o’r cyfieithu ar y pryd. Lle mae cyfranwyr wedi darparu cywiriadau i’w tystiolaeth, nodir y rheini yn y trawsgrifiad.

The proceedings are reported in the language in which they were spoken in the committee. In addition, a transcription of the simultaneous interpretation is included. Where contributors have supplied corrections to their evidence, these are noted in the transcript.

Dechreuodd y cyfarfod am 09:32.

The meeting began at 09:32.

1. Cyflwyniad, ymddiheuriadau, dirprwyon a datgan buddiannau
1. Introductions, apologies, substitutions and declarations of interest

Bore da i chi gyd a chroeso i'r cyfarfod yma. Mae'n gyfarfod ar y cyd y bore yma rhwng y Pwyllgor Cyllid a Phwyllgor yr Economi, Seilwaith a Sgiliau. Dŷn ni, wrth gwrs, wedi cytuno i wneud darn o waith yn edrych ar y taliadau cadw yn y sector adeiladu, ac oherwydd bod y pwnc yna yn gorgyffwrdd â gwaith y ddau bwyllgor, roedden ni'n teimlo y byddai'n addas i ni wneud sesiwn a darn o waith ar y cyd.

A gaf i felly groesawu pawb atom ni y bore yma? A gaf i nodi ein bod ni wedi derbyn ymddiheuriadau oddi wrth Rhianon Passmore a Bethan Sayed? A gaf i nodi hefyd fod clustffonau ar gael, wrth gwrs, fel arfer ar gyfer y cyfieithu, neu i addasu lefel y sain? Ac a gaf i atgoffa Aelodau am yr angen i ddiffodd y sain ar unrhyw ddyfeisiadau electronig sydd gennych chi? A gaf i ofyn a oes gan unrhyw Aelodau unrhyw fuddiannau i'w datgan? Nac oes. Iawn, dyna ni.

Good morning to you all and welcome to this meeting. It's a joint meeting between the Finance Committee and the Economy, Infrastructure and Skills Committee. Of course, we've agreed to do a piece of work looking at the retention payments in the construction sector, and because that subject is of a cross-cutting nature, we felt it was appropriate to do a joint piece of work.

Could I therefore welcome everyone to us this morning? Could I note that we have had apologies from Rhianon Passmore and Bethan Sayed? Could I also note that headsets are available, of course, as usual for translation, or for sound amplification? And could I remind Members also of the need to ensure that any electronic devices are on silent? And could I ask whether Members have any interests to declare? No. Okay, there we are.

2. Sesiwn dystiolaeth: Taliadau cadw yn y sector adeiladu
2. Evidence session: Retention payments in the construction sector

Ymlaen â ni, felly, at yr ail eitem, sef y sesiwn dystiolaeth gyda'n panel ni y bore yma. Croeso i'r pedwar ohonoch chi. Dwi'n meddwl efallai y buasai'n haws petaech chi, ar gyfer y record, yn cyflwyno eich hunain, yn sôn am eich rôl chi, efallai, yn fyr, a jest dweud pwy rŷch chi'n cynrychioli. Fe ddechreuwn ni ar yr ochr yma.

We'll move on, therefore, to the second item, namely the evidence session with our panel this morning. Welcome to all of you. I think it would be easier if you, for the record, introduced yourselves, and talk about your role, perhaps, and just say who you represent. We'll start on this side.

Thank you, Chairman. My name's Rudi Klein, I'm the chief executive officer of the Specialist Engineering Contractors' Group. It's a UK-wide organisation, but it has offshoots in all the devolved Governments—SEC Group Wales, SEC Group Northern Ireland, SEC Group Scotland and so on. I've been involved with this issue of retention for almost 30 years. 

Hi there. Cat Griffith-Williams, I'm the national executive officer for SEC Group Wales. I also represent the head of Wales for BESA, which is the Building Engineering Services Association, so specialist mechanical engineers throughout the whole of Wales. Thank you.

Ifan Glyn, cyfarwyddwr Ffederasiwn y Meistri Adeiladu yng Nghymru. Dŷn ni'n cynrychioli rhyw 400 o gwmnïau adeiladu bach yng Nghymru.

I'm Ifan Glyn, the senior hub director/Wales director of the Federation of Master Builders. We represent some 400 small building companies in Wales. 

Good morning, my name is Kyle Spiller. I'm a committee member for the Chartered Institute of Building in Wales, and I also own a contractor called SAM Drylining. So, I've got hands-on experience as a contractor dealing with construction retentions in Wales. Thank you.

09:35

Diolch yn fawr iawn. Croeso i chi. Fe awn ni'n syth i gwestiynau, felly, os ydy hynny'n iawn. Ac mi wnaf i gychwyn, os caf i, jest drwy ofyn a allwch chi, jest i roi bach o gyd-destun i ni, amlinellu sut a phryd y mae taliadau cadw yn cael eu defnyddio mewn contractau adeiladu a pha mor amlwg yw eu defnydd nhw yn y Deyrnas Unedig, wrth gwrs, ond yn benodol o'n safbwynt ni yma yng Nghymru. Dwi ddim yn siŵr pwy sydd eisiau cychwyn—Rudi?

Thank you very much. Welcome to you all. We'll go straight into questions, if that's okay. And I'll start, if I may, just by asking whether you could, just to give us some context, outline how and when retentions are used in construction contracts and how prevalent their use is in the UK, but specifically in Wales, of course. I don't know who wants to start—Rudi?

Shall I kick off? They have been in use since Victorian times, so probably about 200 years. They were introduced at a time when there was a lot of work going on—a lot of infrastructure in early Victorian times—and they were introduced as a means to protect clients against insolvency, because, in fact, there were firms going into insolvency as each day passed during those times. So, it was a means of insolvency protection.

Today it's still with us—it's widespread. The idea is that you hold back moneys, if you're a client, on projects in case there may be defects and to encourage people to return to remedy defects. That's the thinking, but, in practice, they're usually deducted these days to help the cash flow of those that deduct them. In particular, they support the cash flow of tier 1 contractors, of course, who, as we all probably are aware, are always undercapitalised, so they do depend on these moneys to support their balance sheets. So, it's 5 per cent deducted. Usually, half of this is given back at handover of the works, and then 12 months later—I say 12 months later, but this is the theory, by the way—the balance then is released. But as you go down the supply chain, of course, things get worse, because, in fact, the retentions are never released automatically. It could take two, three, four or five years for retentions to be released.

Of course, the other problem we have is that there is inequality of protection for supply chain firms when it comes to the public sector, because in the public sector retentions are protected because public bodies don't go bust. So, if I'm a contractor dealing with a public body, I'm protected. On the other hand, if you're in the supply chain, you lose all of your moneys if the tier 1 goes bust. What was the company that went bust this year, Cat?

Dawnus, that's right—it went bust in March. When they went bust, they left £39 million owing to the supply chain. Most of that would have been retention moneys. But their retentions, of course, would have been protected upstream. That's it, in a nutshell.

Yes, sure, and we'll be able to pursue all of these issues, really, as we go along. Can I just ask whether there are any particular differences that you see between the way they're used in Wales compared to the rest of the UK, or is it very much a similar process everywhere, really?

There are some differences. We did some research, about four or five years ago, looking at retentions in Wales and England. And it seems that in Wales there is a greater use of retention moneys than there is in England. Every council, bar two in Wales, depends on retentions; they tend to use retentions either to add to their general expenditure or to use as working capital.

As far as health authorities are concerned in Wales, what we've found, which was slightly troublesome, was that instead of the standard 5 per cent that was being deducted, about 10 per cent retention was being deducted, and, of course, that goes down the supply chain as well. So, there were those differences, but, otherwise, the practice is, obviously, very, very similar. But we were just a bit concerned that there was an over-reliance in Wales on retention moneys.

Ocê, diolch yn fawr iawn. Mike Hedges.

Okay, thank you very much. Mike Hedges.

You've explained about why they hold the money—the risk of the contractor becoming insolvent. There's also another reason, isn't there, for holding money? It's to make them come back if they've done things that need remedying. If you don't have that financial pull on them, they may not wish to come back to remedy faults, but if you've got a financial pull on them of 10 per cent of the contract, they will definitely come back and remedy faults. I've yet to see a major building that has been built and handed over that hasn't got any faults.

09:40

That's true in theory, absolutely. The fact of the matter is a lot of very large construction companies—their business model isn't based on building. It's actually—. In terms of the profit margins of very large companies, it's minimal and often it's non-existent. So, in 2017, an organisation called Build UK that represent the tier 1 companies—all their members showed that, in 2017, their profit margins were on average -0.5 per cent. So, then you ask, 'Why do they bother building?' Essentially, their payment practices are very poor, the large companies. Retentions is part of this, and what they do is they've basically got an incentive to keep that money as much as possible and they invest that money on the market and that's how they make money. So, in theory, retention is there to be used to remedy work that isn't up to scratch, however they've got an incentive to keep that money for as long as possible, because if they do that they can invest more of that money and make more of a margin from it.

I always look at companies' balance sheets with interest, but we know how little profit some of the large information technology companies manage to make in this country by using financial techniques, which are totally legal, about paying money for intellectual property, paying money to other parts of the company. Are you saying that none of those construction companies do anything like that whatsoever and it's all down to internal movement in Britain?

I don't know. In terms of—. All I can say is that large firms make very little money from construction itself. It's from being able to hold money that's owed to the supply chain and investing money that's not theirs. Where they're investing that, I don't know.

Mr Hedges, can I just pick up on the defects point? It's quite an important one because that's the general perception, isn't it, about that? And the point there, really, is: after 200 years of retentions, have we actually raised the quality of construction in Wales or, indeed, in the rest of the UK? And the answer to that is, 'Probably not that significantly.' We still have defects.

It was interesting—. In our submission, we make reference, I think, to a report by Dame Judith Hackitt who carried out an inquiry into building safety following the Grenfell fire disaster, and what she said in her report—and I think the extract is in our submission—was that poor payment behaviours, including retentions, actually lead to poorer quality because, in fact, people will take the view, 'Well, I'm probably not going to get this money back', or 'It's going to take me years to get it back. Why bother?' So, actually, paradoxically, it's a disincentive to people dealing with defects or actually ensuring the quality is right first time, but I would also say that, interestingly, reputable companies, good businesses, can't simply afford not to come back to remedy defects. I mean, why would they do that in the first place? And it's always been strange to me. I mean, I've had work done on my own properties over the years, as we all have, but I've never asked for retentions on the simple basis that, look, if I was to say to a builder or anybody else, 'I don't trust you to do this job properly, so I'm going to hold some money back. I'll hold 10 per cent back', that doesn't make sense, does it? So, it doesn't actually achieve what it's set out to do.

But I'll just finish by saying that all the construction contracts out there don't make it clear what retentions are used for. So, they're used for anything, basically, but as my colleague here has said, it's basically to finance a series of people up the supply chain. That's the main driver—today, anyway—for deducting.

Could I just add a point on impact? What I've heard from the members, which are predominantly made up of small and medium-sized enterprises and micros throughout Wales, and just looking at it from a supply chain point of view, is that, invariably, the release of retentions is linked to the release of retentions up the supply chain. So, it won't have any impact on the work that somebody's done, but it's all bagged together so the retention is only released on the lump sum of the whole supply chain, not just the work that a part of the supply chain has done. So, it has a massive impact on everybody involved throughout the chain. So, I think that's to look, from an impact point of view, at where we're going.

If I could just add to that slightly from a contractor's perspective as well, I've done a building analysis on our retentions ledger, and over 95 per cent of our retentions were not paid by main contractors until they had been paid themselves, which is contrary to the scheme for construction contracts and obviously contrary to the construction Act and the contract itself. And it does sit on your balance sheet for a long, long time, retention, and generally the excuse is that they've got defects on the building—whether or not that's a school or a hospital or anything like that—but they don't necessarily look at whether or not that's linked with your package of works. So, it could be something to do with the external works for the envelope and we could be inside doing the ceilings, which are fine 12 months later, but then they're still holding a considerable sum of money because there are defects elsewhere in the building, which is penalising the sub-contractors within the supply chain.

09:45

But even if—. Sorry, can I just finish with this? Even if it's on the balance sheet, it won't count against the profit, will it? It'd be under amount owed, wouldn't it? So, it wouldn't actually impact the balance sheet. It might impact the cash flow, but it wouldn't impact the balance sheet.

I think that's the point we need to look at, cash flow of the industry. It's difficult to make money out there anyway. Payment practices of large tier 1 organisations are very poor in the UK, as a rule of thumb, and this transposes into the supply chain. And, generally, what you see in the supply chain is that their margin aspirations are probably a little bit higher, or they add a few per cent into the contract value, just to try and account for these eventualities where they know, potentially, this retention money is not going to come back, or, if it does come back, it'll be a battle and it might go on for years.

Yes. You're describing a dysfunctional industry, to me, frankly. If Mr Glyn is correct, then you've got people taking money and investing it elsewhere for their own benefit. I don't think there's anything specifically wrong with that under existing law; you might wish to change that.

Mr Klein, my reading of Hackitt's report was that she described a lack of regulation as much as anything else, and you're right about the individual examples you quote, but, when you contextualise those individual examples, you actually see a different picture, I think it's fair to say. So, would I be correct in hearing what you're saying as that the industry, as currently structured, on a wide scale, is not a functional industry in the way that fair profit is derived at each element of it and that these payments that we're discussing this morning are simply a reflection of a structural issue within the industry rather than a problem themselves?

Yes, I agree with that. You can go back even further. It starts with procurement, that we get our procurement wrong all the time. All the value is in the supply chain, all the investment in skills, in technology, is in the supply chain. They need their money, obviously, but also, given their contribution, they're rarely involved early enough in the procurement process to actually have any impact at all on quality and outcomes. So, I would accept that, but I think, in dealing with this particular problem, this is one issue that grates on almost every small business in Wales. My colleague and I, Catherine and I, we go around, we talk to firms all the time—I'm sure my colleagues along the table here do the same—and the message we constantly get is that this is one issue that they feel that they're out of control on, they can't control it, they can't borrow money on the back of their retention ledger, because, in fact, the moneys are not safe. There's a fundamental issue here, though, and I think most firms will tell you this, which is that these moneys are my moneys. Legally they are—and I speak with a legal hat on as well—and they are their moneys because, in fact, they're taken from moneys that are accepted as owing to them—saying, 'Look, we pay you £10 for your work, but we're holding 5 per cent back'. So, they're entitled to say, 'Surely, I'm giving you security. I want security for the security I'm giving you'. So, there has to be some mutuality of security here, I think. And they're entitled to challenge all of us by saying, 'I want my moneys protected. They are my moneys; I want them—'.

'I want them protected'. Yes.

But isn't there an issue here, though? Because, as a public representative, I've felt bullied sometimes by some of the major housebuilders who say, 'We can't afford to build anything in Blaenau Gwent; there's no profit to be found there'. And then, when we were introducing the sprinkler legislation, of course, we were being told, 'You'll end house building in Wales' and the rest of it—all sorts of different public bullying tactics being used. Obviously, they're not saying that now, and they need to understand the public anger with them about that.

And then what we see are enormous profits being derived from parts of the business, huge profits, obscene profits in some cases, being derived from an industry that says it can't afford to pay itself. Now, what that tells me is this is an issue where these payments may be an issue and grate with your members—I completely understand that—but aren't they a reflection of a more fundamental issue with an industry that can't manage itself and is poorly structured and not delivering either for people working in the industry or for the rest of society?

09:50

Well, part of the problem, Mr Davies, as we all know, is that the industry is fragmented. Ninety-nine per cent of the industry is made up of small firms, the majority of them employing less than 10 people, particularly more so in Wales than other parts of the UK. So, as a very, very fragmented industry, it's very difficult for it to get its act together and act as one to cure these problems, which is why, a few years ago, we had to introduce the construction Act to try and improve payments in the industry. So, we've already got some regulation; unfortunately, it doesn't go far enough to deal with the extant problem we're now talking about.

But I think the—. You were talking about the house builders, and the interesting thing about the house builders—I mean those obscene profits, and I absolutely agree with you. I'll tell you how some of those obscene profits are funded; they're funded, actually, by their subcontractors, because they don't give retentions to the customer, but they'll take retentions from their subcontractors, and they tell their subcontractors, 'You won't get the bulk of these retentions back until the last house is sold', and that could be years down the line. That is the issue.

I am keen to move on, because I am conscious that we are up against time a little bit, but, Mark, you just want to make a quick point.

You were saying, in terms of the legal analysis, that the subcontractor—the retentions are being held for them and, therefore, they should have security. Why should they not also get the interest or investment return on that money if it's been held for their account?

Well, they should, but they don't. They are entitled to claim interest. There is, actually, legislation in place that allows you to claim interest. The problem is, again, because of the bullying that Mr Davies was describing earlier, which actually goes right across the industry as well—because of the bullying, because of the fear, the climate of fear, that exists in the industry amongst small firms, they actually don't claim the interest. So, they never get the interest on retention at all, and, for them, if they get it back three or four years later, there's a lot of money that's been lost, or the value of that money has actually been significantly lost over that period.

Thank you very much, Chair. I was very interested, listening to you, Mr Klein, that this is a Victorian type or Victorian age retention scheme still carrying on. It's a bit strange, because contractors, they're working hard, and SMEs I'm concerned about too, and the money they put for retention is a part of their profit, which should be given to the business to run more business and improve the business, so that is a bit of a hurdle. It's like your money's in the safe, but somebody else has got the key. So, my question to you: what is the process for an SME to obtain retention held on contract and what mechanism do contractors have to challenge decisions that might lead to retention money not being released?

Well, the only avenue open in most cases is to refer the non-release of the retention to statutory adjudication. This is supposed to be a very quick process for resolving disputes; 28 days is the period that is taken by the adjudicator to decide the matter. But, I have to say, although we were responsible for pressing to introduce this mode of dispute resolution, it's become extraordinarily expensive; now, dare I say it, because of legal involvement, lawyers' involvement, it has become extremely—. So, most firms do not go down that route to claim their retentions, which can be, in the case of a small business, just a few thousand pounds. So, very often, in practice, what they do is they just give up. They just say, 'Well, it's not worth it, because it's going to cost us more to get a relatively small amount.' So, in fact, over a period of a year, you could find that a lot of firms—my friend at the end here will probably bear this out—just wouldn't pursue these moneys at all.

Yes, it is, yes. Zero per cent of retentions that are due to us get released without any involvement of ourselves, which is quite alarming considering it should be released 12 months after defects. It should be an automatic process from the tier 1 contractors or from the local authorities that we work for, but it's very much a process driven by the contractor who is actually owed the sum of money, which is quite a saddening fact.

09:55

Can I just—? I just want to—. I don't want to end up caricaturing this, but is it the case that what we're actually talking about is the small firms against the big corporates? Is that the problem? Is that the imbalance?

I would say it is for the most part—not always, because you could still, in the supply chain you could get—. Because we go down to so many layers of contracting, so you could have a situation where a tier 3 contractor, let's be fair about this, could be finding that a larger SME up the supply chain is doing the same sort of thing, because in fact they're using the retentions to bolster their cash flow too. So, we can't just simply say it's all big companies. 

How about this then: if the big corporates changed their behaviour, would there be a huge culture change with these practices?

Yes, but that's a very big if.

Dwi'n cytuno efo hynny'n llwyr. Yn y bôn, mae'n rhaid i'r newid ddechrau o'r top, ond gan bod y diwylliant yma'n bodoli ar y top, mae'r holl gadwyn yn pydru o achos hynny.

I agree with that entirely. Basically, the change has to start from the top, but given that this culture exists at the top, the whole chain rots because of that. 

We need to go after the Redrows and the Persimmons then in that case.

Good morning. It seems to me then that this is part of a system where people who are bidding—it's mostly tier 1 we're talking about—have this as part of their business case, that seems to be what you're saying, so that they can then move forward. But it also gives a huge risk for SMEs in Wales, because most building contracts in Wales are actually delivered by SMEs because they haven't got the capacity to bid in the first place, which brings us to the procurement argument before we start. So, that being the case, and we're looking at trying to change things for the better for everybody, what are the alternatives?

Well, I think that there is one primary alternative, which is bonds, retentions bonds. Now, bonds are in use but not in the majority of cases at all. Retention bonds are costly. Most small businesses, most SMEs, do not have access to the bond market, or if they did they wouldn't be able to afford the cost of bonding. The cost of bonding could be for SMEs anything up to 10 per cent of the value of the bond. There's also a fee that is charged for issuing the bond as well. So, it really isn't a paying proposition perhaps for the majority of companies. So, I think that rules out bonding as a realistic alternative for most small firms.

The only thing then you can fall back on—something which we've already alluded to briefly in the conversation—is protecting the moneys, ensuring that the moneys are safe. Certainly, most small firms, as long as they know that the moneys are safe and that they're going to get them back on time—. Because it's not just the cost of providing the retention and waiting for them to be released, it's the costs in addition—the loss of interest we've already discussed, but the cost of chasing them, that itself is quite a significant cost. We often forget about this.

So, the only realistic alternative, the one that you can address almost immediately, is that the moneys are kept safe for the 12 months that they are—for the balance of the retention that they have to be kept there. So, I think that's the only way to go, certainly in our view.

Ie, buaswn i'n cytuno efo hynny. Y cynllun blaendal ad-daliadau cadw ydy'r ffordd ymlaen, rydym ni'n meddwl. Pwynt pwysig i'w wneud ydy, os ydym ni'n cael gwared ar ddefnydd o daliadau cadw yn llwyr, mae'n rhaid cael rhywbeth yn ei le. Allwn ni ddim jest cael gwared arno fo dros nos, achos fel arall mi fuasai yna arferion eraill yn dod yn ei le fo, ac mi allai hynny fod yn fwy niweidiol byth.

Yes, I would agree with that. The deposit retention scheme is the way ahead, we think. The important point to make is that, if we get rid of the use of retention payments entirely, we have to have something instead of it. We can't just get rid of it overnight, otherwise there would be other practices that would come instead of that, and they could be more detrimental still.

10:00

Bore da i chi. Gaf i ddweud yn gyntaf, dwi'n falch ein bod ni'n cael y drafodaeth yma? Mae'n deillio o sgwrs gawsom ni rhyw flwyddyn yn ôl, pan ges i, yn sicr, fy mherswadio bod yna anghyfiawnder yn fan hyn, a dwi'n falch bod y Pwyllgor Cyllid ac wedyn y pwyllgor economi wedi bod yn barod i fynd â'r mater yn ei flaen.

Roedd gen i gwestiynau ynglŷn â sut mae'r sefyllfa'n gwaethygu wrth fynd i lawr y gadwyn gyflenwi. Dwi'n meddwl eich bod chi wedi ateb y rheini'n eithaf da. Ydych chi'n gallu asesu beth ydy'r balans rhwng cadw arian yn ôl mewn ffordd sydd yn gallu cael ei gyfiawnhau ac arian yn cael ei gadw nôl mewn ffordd sydd ddim?

Good morning, everyone. May I first of all say that I'm very glad we're having this discussion? It follows from something that was raised a year ago, when I was persuaded, certainly, that there was an injustice taking place here, and I'm glad that the Finance Committee and the Economy, Infrastructure and Skills Committee were glad to bring this issue further forward.

So, I had questions in terms of how the situation deteriorates in terms of the supply chain. I think you've answered those questions pretty well, but can you assess what the balance is between the retention of payment in a justified manner and the retention of payment in an unjustified manner?

Perhaps I can answer that very simply. In fact, one of the things I forgot to mention in response to your question—may I call you, Joyce, because we do know each other—is that one of our member organisations, which is the Lift and Escalator Industry Association, and this helps to answer your question, have, for almost 20 years, been operating something called a 'guarantee scheme'—an insurance-backed guarantee scheme for retentions. And they can do that because they are a relatively small group of companies. And over those 20 years, they've saved hundreds of thousands of pounds not having to provide cash retentions. That's allowed them, of course, to invest more in the businesses, in skills, in new technologies and so on. But also interesting, though, there have only ever been five calls on the guarantee over those 20 years, and those calls have been for reasons of insolvency. So, the company is not going back to rectify problems because they've gone bust, basically.

So, that is probably—talking about the ratio that you've raised—some indication of the ratio of not returning to remedy defects and not having to do that. So, it's very, very low. Although the lift sector is a bit more of a regulated sector, I've no reason to believe that, generally, that is any different right across the board. But what I would say often, though, is that, to me, retention has always been part of the lowest price culture. So, in fact, you go for lowest price and you think, 'Ah, well, I'll have a buffer here; I'll have a retention anyway.' Well, that's not a way to start getting a job done properly.

Ac o ran yr adeiladwyr, rydych chi'n dweud eich hun bod angen rhyw fath o system—mae angen delio efo snags a ballu, onid oes, mewn adeiladu mor syml â hynny? Ond ydych chi, fel adeiladwyr, yn gallu gweld lle mae'r cydbwysedd gyda rhai yn dweud, 'Na, dydy hwn ddim yn deg, ond, ydy, mae'r rhain yn deg', ynteu, ydy o i wneud efo faint o amser mae'r arian yn cael ei gadw?

And in terms of the builders, you have said that you need some sort of system—you need to deal with snags in construction and so forth. But as builders, can you see this balance of being able to say, 'Oh, this isn't fair, but this is fair', or is it more to do with the amount of time for which the money is kept?

Beth sy'n tueddu i ddigwydd, yn amlwg, ydy, pan fydd yna alwad ar adeiladwyr i fynd yn ôl i drwsio gwaith diffygiol, yn aml iawn mae'r adeiladwyr yn credu bod hynny'n annheg, am resymau amlwg, a dydy'r prif gontractwr ddim yn credu hynny. Y broblem ydy, dydy'r berthynas ddim yn un hafal. Hynny yw, os ydy'r contractwr yn credu nad ydy'r gwaith i'r safon, dyna ni. Beth fuaswn i'n licio gweld, yn amlwg, ydy, pe bai yna system o flaendal, yna mi fuasai rhywun annibynnol yn penderfynu pryd mae angen i'r adeiladwr fynd yn ôl i gywiro gwaith diffygiol.

What tends to happen is that, obviously, when there is a call for builders to go back to fix any defective work, then, often, the building firms think that that's unfair, for obvious reasons, and the main contractor doesn't believe that. The problem is that the relationship isn't equal. That is, if the contractor believes that the work isn't up to the required quality, then that's it. What I'd like to see is that, if there was a deposit scheme, then an independent person or entity could decide when the construction firm would need to go back to correct the deficient work.

Mae'r system blaendal wedi cael ei egluro gennych chi. Mae yna Fil y byddech chi'n licio ei weld yn mynd drwy'r Senedd. Oes yna enghreifftiau rhyngwladol o beth sy'n digwydd mewn gwledydd eraill sydd wedi mynd i'r afael â hyn yn llwyddiannus?

This deposit system has been explained by you. There's a Bill that you'd like to see going through Parliament. Can you give us any international examples of what's happening elsewhere where this has been tackled successfully?

Yes. I'm quite au fait with international examples. I do some teaching at University of Stuttgart—it's a Master's course on international construction contracts. So, I have an appreciation of what goes on around the world, because the students come from all over the world. Interestingly, in Europe the approaches are slightly different. In Germany, under German law, the moneys have to be put into a stakeholder account. They don't have the concept of a trust in Germany. In French law—the French law for subcontracting that was introduced in 1975—all tier 1 contractors have to provide a bank guarantee to ensure that the money—not just retentions, but any payment—is then provided to the subcontractor. In Switzerland, for example, if you're owed money over retentions, after the time has passed you can put a charge on the building. Australia and New Zealand have introduced quite recently legislation. In New South Wales they've introduced legislation about two or three years ago that requires that the tier 1 contractor puts the retentions into a separate trust account, but, unfortunately, that only applies to projects over $20 million in Australian dollars, which is probably about £12 million here. But New Zealand have a similar sort of scheme that, again, says that the retention moneys have to be held in trust. Unfortunately, under New Zealand legislation, there isn't a requirement to segregate the moneys, which is essential, because they qualify as a deemed trust in the main contractor's hands; I'm not quite sure how that works. In the United States and Canada, the various states have different approaches, as you can imagine—there are roughly 52 jurisdictions. Some states will require that the moneys are segregated in trust, some states put a limit on the time you can hold the moneys. Canadian states tend to, by and large, require that the moneys are held in trust and kept separate. They also have, additionally, as in Switzerland, what they call a lien system, where you can put a charge on the building to make sure that the moneys are paid. Clients who are procuring a building get very worried about this, so they often, in fact, make sure that tier 1 contractors actually pay all the suppliers on time.

So, I would say, right across the board, the tendency with all the legislation that's there in the world is for the moneys to be kept protected and maintained in a protected account.

10:05

Absolutely, yes. There's the Aldous Bill, of course, which I drafted, which was in the House of Commons as well. That was the construction retentions deposit scheme Bill, which is quite a good template.

What about on the other end? Are there mitigation measures that could be put in place? Say nothing gets done in the Assembly, and nothing gets done at a UK level, are there mitigation mechanisms to deal with what happens when too much money is retained and people get into trouble?

I think there are. The Welsh Government—we've been working with Welsh Government now for some time, to support their efforts to introduce project bank accounts, and that was introduced last year. The First Minister—previously the finance Minister—in fact, was responsible for really pushing for that. So, we have mandated project bank accounts in Wales for projects over £2 million. I think it would be helpful if this joint committee was to perhaps recommend that Welsh Government perhaps amend their guidance on project bank accounts and suggest that retention moneys are actually kept in the project bank account so they attract the trust protection that the project bank account has. So, that would be a very useful recommendation, I would think.

The other point is that we also—it was suggested at a meeting we had, I think last year sometime—was it last year, Catherine? 

It was last year with Value Wales, where it was suggested to us that maybe we could actually have a couple of clauses that public bodies in Wales could insist are inserted into subcontracts, so that when they enter into contracts with tier 1 contractors, these clauses require that the tier 1 contractor then puts in place some measure of protection for the retentions down the supply chain. Now, again, if this joint committee felt able to recommend that Welsh Government push those options as well in the meantime, that would be helpful.

And are those two recommendations and suggestions ones that you would be supportive of?

We would, certainly. I think in terms of the trust idea of a retention payment, it would be difficult to try and instil that through the entire industry in Wales. Obviously, with the public sector-funded contracts, it's something that can be mandated fairly effectively once it's passed. But, obviously, there's quite a busy private sector in Wales as well, and the rulebook goes out the window in terms of the contracts. Obviously, there are contracts in place between clients and tier 1 contractors, and normally they contain quite onerous clauses to look after the trusts, whoever are funding the works, especially the work I see in Cardiff at the moment—it's getting funded from, probably, all over the world. It's on quite onerous terms, and those terms are mirrored within the subcontracts. And you try and negotiate them out, and it's quite difficult, because they are just going back to back with their clients. We've actually got retentions now that are spanning over three years after defects, released in segmented stages. So, trust has certainly got to be the way forward. But then, on the other side of project bank accounts, from my experience so far with project bank accounts, it's not every single member of the supply chain that's being signed up to the trust, so that needs to change as well. It needs to be every single member of the supply chain so that everyone is entitled to the same protection.

10:10

Can I say, I've got very great sympathy with what you're saying this morning? I ran a small business before I was elected, and the public sector were always the worst payers—28-day terms, and you'd get cash on the twenty-ninth, if you were lucky. So, I've got great sympathy with the issues around payments, and I've got great sympathy with the potential place of the public as an exemplar delivering best practice. And I guess, from what you're saying this morning, there are areas where the public sector could act without the need for legislation, and I presume we're covering a deposit scheme—that's what I'm picking up from what you're saying—that would be protected in a way that this currently happens. I presume also that the public sector should be recognising issues around safety, around trade unionism, about the payment of wages on time in a much wider, fairer way. So, am I right in saying that, at the moment, in terms of public contracts, none of these things actually happen? Because I think we've heard from Ministers that they are very content with the way that public contracts are offered in Wales, and the way in which public contracts are used in order to ratchet up or improve quality and standards.

Well, I think that one of the things, certainly in my experience—and my colleague and I have been dealing with Welsh Government now for many years—. I live near Welshpool, I was born in Wales, so I'm often in Cardiff. The Welsh Government, whatever party has been in power, has been very supportive of small and medium-sized enterprises in Wales and wants to do the right thing. The problem is that, very often, though, this tends to happen more at the top, but it doesn't get filtered down through the supply chain, and that's the thing we really need to address. So, what happens—I think as one of my colleagues here said—you might get, say, a retention release on time by a public body, but then by the time you get down to tier 2 and tier 3, many more years will have passed before that retention is actually released further down. And that's a problem we're facing all the time.

I think what's important here is we mustn't lose sight of the fact that, if we're going to make a difference here, frankly—and I take the point that Kyle made earlier that, when you look at the private sector as well—it's only a statutory approach here that can actually make a difference. And I have to say that there's been a lot of interest in this inquiry from firms in Wales. They really are expecting things to come out of this inquiry, and I think there's a real opportunity here to have a statutory requirement in Wales that says that, if retention moneys are deducted, they have to be right [correction: ring-fenced] across the board, the public sector and the private sector. That initiative would be groundbreaking. But it does reflect all the jurisdictions and what happens in the jurisdictions I actually referred to earlier. And we've got plenty of templates to be able to do that, I think. I did investigate the competence of the Welsh Assembly to do this, and the competence I think is there to do this, anyway. So, we mustn't lose sight—. If you're going to make a difference, because voluntary means and guidances don't make a difference—. The public sector, yes, can make a difference, and it's doing it with project bank accounts, but we're talking projects over £2 million.

Yes, I get all of that, but the Welsh Government, for argument's sake, just to talk about the Government, could be a more intelligent client and it could be saying to firms that are contracted to deliver on its behalf, 'We expect you to be able to demonstrate good employment and good practice throughout your business.' I wouldn't want the Welsh Government to be contracted to an organisation or a company that puts waste into the Pacific or employs child labour in India. I would say that might not be in this jurisdiction, but, by the strength and power of our budget and our procurement, we will want to change your behaviour, because we believe it's the right and proper thing to do. So, even though the tier 1 relationship is one that I understand, an intelligent client can say, 'And do you know what? Tier 2 and tier 3 are treated in exactly this way.' Otherwise, you don't go on the shortlist. 

10:15

Yes, absolutely. 

Interesting line of questioning there. Rudi Klein, you said earlier that you hope that this committee inquiry will result in a change, and you've obviously looked into the competence that the Assembly has got. So, for that to happen, it's not just a question of saying the current situation isn't good enough, we've got to come up with some alternatives. So, the deposit retention scheme is one alternative. I think you said there were other alternatives operating in the United States as well. You mentioned bonds.  

Yes, like a limit on the time you can hold retentions, this lien system of putting charges on the structure if you're owed money, but that's more complex, I would suggest, because you'll get conveyancing solicitors going bonkers if they have to deal with more charges on property. I think protecting the money is probably the only way. 

We do have, in development at the moment, a digital platform to help in this respect. We're working with people who've been involved in the banking sector for some years, and with insurance companies, to develop a platform. It would operate in a similar way to the tenancy deposit scheme. That was introduced under the Housing Act 2004. If we have tenants or landlords around the table, we know that you've got to put the tenant's deposit into a separate scheme, or there's an insurance option as well as this cash—a custodial option.

So, based on that sort of concept, we're starting the development—it's been in development for about two years—of a scheme, digitally operated, which means that you only have a one-off payment that will go from the client, the 5 per cent will go from the client, directly into the scheme, rather than everybody else funding it up through the supply chain. 

But the idea of this scheme is that you will have access to all the moneys going into the account. So, you know what's going into the account, you'll have greater transparency, you'll be able to borrow money on the back of your retention ledger because it'll be secured, and it'll cost in the region, at the moment, of about £230 for every £100,000-worth of contract value. But that will reduce over time as the insolvency risk becomes better known. 

So, it would be a very easy process to operate. The only thing at the moment that's holding us back a little bit is that we need funding to develop the software. We have applied to Innovate UK for funding, but it would be great if we could perhaps cajole Welsh Government—

Yes, I thought you might. But that would be useful. 

Yes. I wanted to ask, because you actually said in your evidence that you had this digital system called 'building information modelling': is that what you're referring to? Is that what you're operating at the moment? Is that something different? 

Yes, it's something different, yes. 

No. To be fair, the construction industry has moved on quite a lot in terms of technology in the way it operates in the last few years, and that's been driven by the public sector, and the Welsh Assembly have been wanting to promote that. But what we've noticed is that the payment practices have still remained quite analogue, and there are digital platforms out there available for use that have not been adopted.

On a smaller scale, companies are moving towards cloud accounting software. You can put payment services directly onto online platforms where you can see the status of whether or not an invoice or an application for payment has been read, whether or not the client's quantity surveyors have certified the payment and passed it through to accounts for payment, and you can actually view the due date for payment. So, those solutions are out there, but it's not widespread amongst the construction industry at the moment.  

Can I just ask, then: how is that different to what Rudi Klein was proposing? Is it because it's more advanced and a better system, or are we talking about something completely different to that?  

What we're just talking about now is just streamlining, or maybe adding a layer of transparency just to the payment process for a construction contract in general. So, obviously, during the construction phase of works, contractors will apply for their money on a monthly basis from the main contractor. 

10:20

The difference is what we're talking about is just a process for protecting the cash, having a safe receptacle for the cash. Kyle's is—

It's talking more about transparency in the payment process from client to contractor, so you can see the status of where your payment is. Obviously, what we believe is that, if the entire payment process was transparent, the retention payment process would be a little bit more transparent as well. So, ideally, for a sub-contractor especially, an SME like myself, we never know when main contractors receive their retention payments from clients. So, they would palm us off and say, 'Well, we haven't received it.' And, in the interest of maintaining good relationships with your clients, you kind of bear with it.

There are mechanisms within the standard form contracts and most contracts, and obviously there is statutory guidance so that we could refer any dispute for adjudication, but then that would just completely deteriorate any relationship we have. So, it's just the kind of thing that—we grin and bear with it really, rather than—. We think, if there was transparency from client down to supply chain, then the retention process, the payment of retentions, would certainly be sped up. 

And where are you with this model at the moment? How widespread is it being used and how effective—?

It's not so much a model, it's individual—

It's only because you said 'building information modelling' in your evidence. 

Yes, that's just a reference to the way construction projects are written.

Mainly public sector work, yes. So, there's different levels of BIM, and it talks about increasing the use of technology throughout the entire build process, not just relating to payments. 

Okay. Briefly back to Nick, and then we need to move on to Mark. 

You mentioned earlier adjudication, I was going to ask you about, so that's been dealt with. But, going back to the idea of this digital deposit scheme that you suggested, for want a better word, the big criticism about the deposit scheme has been about locking money out of the supply chain, and the risk to cash flows. So, would the scheme that you're proposing, would that mitigate that?

Absolutely. I've never understood that point, actually, about locking money out of the supply chain. It's locked out at the moment—they don't get it for three or four years. 

Yes, but the difference is, unlike the current system, it will be a secure box, and, with that secure box, as Kyle was saying, talking about having more transparency, you'll be able to go to your bank and say, 'Look, I've got my money in a secure box, the only way that will be accessed is if I don't go back to rectify defects'—so, we get back to what this is all about—'as a reputable business, that will never happen. So, please, bank, give me some more money.' So, it basically comes down to that, having a safe receptacle for what, after all, as an SME, is my money.

So, my understanding is that the UK Government has said that we should get rid of these retention payments by 2025. Is that a realistic ambition and does the UK Government have realistic proposals to do that?

At present, the answer to that is 'no'. First of all, that statement was an ambition that was inserted into a charter that was published about five years ago. There's no—. Let me put it this way: it's a bit of an unreal objective, is that. I have to say that—we discussed this earlier—unless there is some alternative, such as bonds, and they're certainly a risk—. Unless there is some alternative, such as bonds, then that aim—. Because with bonds, it's not retention; it's cash retentions we're talking about really. Unless there's some alternative like that, then we won't get to 2025.

You're more likely to get to that if you put the money safe, because, if I can't abuse the money because it's there, it's kept safe, then I'll be asking myself, 'Why bother asking me in the first place? What is the point? I can't abuse it.' It's like when we were all children, our parents used to tell us, if you abuse a privilege you're given as a child—I always wanted to watch rugby on the television, and I was told I couldn't watch the rugby because I'd been badly behaved. So, it's basically stopping the abuse. If you stop the abuse, then people say, 'Well, we probably won't bother to do that.'

For those of you who have a UK focus in terms of trying to influence politicians and others in this area, is there any sign of active engagement by UK Government and key players in this issue at a UK level, or is the issue already stalled?

10:25

There is. The business department has had three meetings with representatives of the industry and clients of the industry. At the last meeting, a vote was taken by the person who chaired it. The majority agreed that we should now look at a scheme—a statutory scheme—to protect the moneys. The small business Minister, Kelly Tolhurst, did announce in the House of Commons in June that the Government will act on this matter—this is a priority—come what may. So, whatever views there might be out there, they will actually act.

So, there is some positivity, but I have to say, given what's happening at the UK end of things, the likelihood at this stage of anything happening in the very near future is probably unlikely, which is why—with Wales and Welsh Government, it is not so preoccupied with all of those issues, which is why there is more, I think, of an opportunity, certainly with the devolved Governments, to actually take action on this far quicker and show the way, and show Westminster the way: 'Look here, we've done it here. This is the difference it's made for our small businesses. You should actually follow'.

Sorry, Vikki, before we move on, there's somebody else.

Roeddet ti eisiau gwneud pwynt, jest yn fyr.

You wanted to make a point, just briefly.

Yes, very brief. Speaking to colleagues at a UK level, what they inform me, in terms of the UK Government's attitude towards this, is that they're quite keen for the industry to sort this out themselves. That's just not going to happen, because there's always going to be that discrepancy between what the tier 1 contractors want and what SMEs want. So, for anything to happen on this, whether it's on a UK level or a Wales level, it's going to take political leadership.

Thank you, Chair. So, this issue has been touched on a little in answer to other Members' questions. I wanted to ask about the Welsh Government's payment practices in line with the fair payment mechanism. I was just wondering whether there's anything that you wanted to expand on there about how effective that mechanism is or isn't, and also any other work that's going on in other parts of the UK, like Scotland, that we might be able to learn from as well.

On Scotland, they are at the moment carrying out a consultation on retentions—sorry, they will be carrying it out sometime this autumn, apparently. They've had some work done by Pye Tait, which originally also did some work for the UK Government. So, that consultation will come out. I think the Scottish Government are intending to act as a Scottish Government. There's no Government in Northern Ireland, as we know, but the procurement authorities in Northern Ireland are going to start experimenting with having retentions kept in project bank accounts, because there have been project bank accounts in Northern Ireland now since 2013. So, that's what's going on elsewhere.

As far as how effective the current mechanisms of dealing with retentions are—well, 'ineffective' is probably the quickest answer. But I do emphasise, Chair, that within the public sector there's this inequality of distribution of insolvency risk, because public bodies don't go bust, which is why we did propose those options that are in our submission. It was at the invitation of Value Wales, but we haven't really made much progress on them, and they could come back to life if this joint committee was to consider that they would be useful to put forward.

Thank you, and I should have thanked you as well for your papers submitted before our committee today, and also I should have noted our thanks to the Scottish Government and the Scottish Futures Trust as well for their papers, which have been very useful. We are running out of time, I'm afraid, so I'm going to pass over to Russell George now for the last group.

Thank you, Chair. Professor Klein, you said in answer to the earlier question from Llyr that retentions are used in contracts in Wales to a greater extent than they are in other parts of the UK, and I think you referred to public bodies being at a higher percentage. Have you got a sense of why that is? Also, do you feel that public bodies in Wales could do anything different in order to improve the system? How could that be achieved? 

Yes, I think the first question is why public bodies are doing things differently, or why they are asking for a 10 per cent cash retention. Well, the 10 per cent I mentioned was actually referring to the health sector, which was a bit of a surprise, I have to admit. I mean, the only reason I can give you—because we didn't get the reasons why they're doing this—why there's a greater reliance on retentions and so much is being deducted is because, first of all, it's just always been a thing that's been done and so public bodies are advised to do what's always been done. They've always regarded—

10:30

Consultants. Because, very often, a lot of public bodies these days will rely on advice from outside consultants because they don't have the in-house—

But why would those consultants advise Welsh local authorities or bodies different to other local authorities in other parts of the UK?

Well, yes, it's a good question. In other parts of the UK, I think you have, possibly, a lot more local authorities that are better resourced, so they've got more people in-house, they're probably experimenting more with different forms of procurement, for example, more collaborative procurement, perhaps, than in the Welsh sector. I'm only surmising at the moment, I'm only—. I can't give you accurate answers. I can't get into the minds of the people that are actually doing these things, obviously, it's very difficult. But, on the 10 per cent, all I can say there is that it helps, I suppose, to provide some funding for either general expenditure or for financing other works. It just provides extra funding, because that is mainly—. As I think my colleague Ifan said earlier, the main motive for retentions is that it's a handy source of funding the cash flow of the party that's actually deducting the moneys. So, it's a—. Did I answer both questions? Because there was another one.

Well, I'll come on, perhaps. You said earlier as well, and in your written evidence you talk about the potential clauses that public sector bodies should consider including in their construction contracts. Why—? You've outlined some suggestions in your paper. Why have you outlined those suggestions and have you—? When you were discussing, perhaps, this, have you seen any evidence of public bodies actually doing that?

Well, it was prompted, actually, by Value Wales—a discussion we had with Value Wales. It came, actually, to us, and said, 'Well, why don't you perhaps look at the possibility of having at prequalification stage some requirements along these lines?' So, we went away, we drafted them, we gave them back to Value Wales, they were going to set up a meeting with local authorities in Wales, CLAW, which is the acronym for, what is it, the Consortium of Local Authorities in Wales. We were going to have a meeting with them. That hasn't, as yet, transpired. We're hoping to have a meeting, I think, with SEWSCAP, the South East and Mid Wales Collaborative Construction Framework, aren't we, to pursue this. But nothing as yet has happened. But it was a suggestion—as I say, it came out of a meeting we had with Value Wales. It seems to me sensible because, in fact, it rectifies this imbalance of risk distribution as between the supply chain on public projects and the position that's between the public sector itself and the tier 1 contractor.

Okay. Well, thank you for those answers, Mr Klein. I'm just wondering, just to conclude, whether any of our other three witnesses have any final brief thoughts that you want to leave us with, or have we covered all the bases?

What you just said there: of course, tier 1 contractors on construction contracts such as building roads will claim and claim very large sums of money if they think that they can.

Sorry, I didn't—

On construction contracts for building roads, tier 1 contractors claim and quite often large in both actual and percentage terms—and the A465 is a classic example of that—so they have a means of actually getting extra money.

Yes, which is why I always say to clients, 'Well, why don't you go for target cost arrangements, so there's more transparency about cost?' Price is meaningless. If you go for target costs, you avoid those sorts of problems, I would suggest, but that's another—that's probably another issue.

Chair, do you mind if I just say very quickly—on behalf of us all, I suspect—thank all of you for this inquiry? It does mean so much, I think, to firms in Wales and thank you for your time and thank you for doing it. We're really grateful to you.

Well, thank you as well. 

Diolch i chi am eich tystiolaeth y bore yma. Dŷn ni'n gwerthfawrogi'n fawr iawn yr hyn dŷch chi wedi'i rannu gyda ni. Mi fydd yna gopi o'r trawsgrifiad ar gael i chi jest i siecio a gwneud yn siŵr ei fod e'n adlewyrchiad cywir o'r hyn rydych chi wedi'i ddweud wrthym ni, ond diolch o galon i chi. Dŷn ni'n gwerthfawrogi'ch amser chi'n fawr iawn. 

Thank you for your evidence this morning. We very much appreciate what you have shared with us. There will be a copy of the transcript made available to you just to check that it is a correct reflection of what you did say to us, but thank you very much for your time. 

3. Cynnig o dan Reol Sefydlog 17.42 i benderfynu gwahardd y cyhoedd o'r cyfarfod ar gyfer eitem 4
3. Motion under Standing Order 17.42 (ix) to resolve to exclude the public from item 4 of the meeting

Cynnig:

bod y pwyllgor yn penderfynu gwahardd y cyhoedd o weddill y cyfarfod yn unol â Rheol Sefydlog 17.42(vi).

Motion:

that the committee resolves to exclude the public from the remainder of the meeting in accordance with Standing Order 17.42(vi).

Cynigiwyd y cynnig.

Motion moved.

Mi wnawn ni nawr symud i sesiwn breifat. Felly, yn unol â Rheol Sefydlog 17.42(vi), rydw i'n cynnig bod y pwyllgor yn penderfynu gwahardd y cyhoedd o'r cyfarfod ar gyfer eitem 4. Ydy pawb yn gytûn? Ie. Diolch yn fawr iawn. Mi wnawn ni symud i sesiwn breifat, felly. 

We'll now move to a private session. So, in accordance with Standing Order 17.42(vi), I propose that the committee resolves to exclude the public from item 4 of today's meeting. Is everyone content? I see you are. Thank you very much. So, we'll move into private session, therefore. 

10:35

Derbyniwyd y cynnig.

Daeth rhan gyhoeddus y cyfarfod i ben am 10:35.

Motion agreed.

The public part of the meeting ended at 10:35.

Archwilio Cynulliad Cenedlaethol Cymru