A ban on construction retention, interest on late payments and fines for perennial offenders are amongst a a stack of hard-hitting legislative interventions announced today by the UK Government as they set out to clamp down once and for all on payment abuse.

In what is undoubtedly the largest and most ambitious set of reforms in over a generation, this heralds a landmark day for construction.  The changes announced will include a new 60-day cap on payment terms on all large firms when paying smaller suppliers.  New mandatory interest on late payments will also be introduced, with a requirement for all commercial contracts to include statutory interest set at 8% above the Bank of England base rate.

For example, if a small business is owed £10,000 by one of its customers and is paid 60 days later than the agreed payment date, they will be owed £10,293.15 including mandatory interest (£10,000 plus £193.15 interest plus £100 compensation).

The Government also propose to ban the withholding of retention payments under the terms of construction contracts, consulting on its implementation. This will prevent small firms losing retentions to insolvency or non-payment.

In addition The Small Business Commissioner (SBC) will be given sweeping new powers to investigate poor payment practices and fine the worst offenders – with fines worth tens of millions for firms that persistently pay late or fail to comply with the new laws.  The SBC will also be given the power to adjudicate payment disputes, but FIS has been advised that this element will not apply to contracts currently covered by the Construction Act.

The measures, announced will be the toughest in the G7 and will build upon and strengthen legislation on late payments, first laid out in the 1998 Late Payment of Commercial Debt Act, over 25 years ago.  The stated aim is to boost the economy by giving small businesses better cashflow and ultimately tackle a problem that is estimated to be costing the UK economy £11 billion every year and address issues that are contributing to 38 businesses shut their doors every single day because they are not paid on time.

Responding to the announcement, Iain McIlwee, FIS Chief Executive said:

 “This is a landmark day.  We have long called for retention to be abolished and the scourge of late payment to be addressed through regulation and here we are – a plausible set of recommendations laid out and a timeline is being set.  These issues have been a cancer at the core of our sector.  Negative behaviours have become the norm and have restricted capacity, inhibited workforce development and diminished the sector’s ability to perform.

We applaud Government for taking this stand and colleagues in the Civil Service for helping to champion the concerns of the supply chain and setting the wheels in motion for change.

We appreciate this is not the end, but we do very much see it as the beginning of the end for the worst of payment abuse and FIS has already committed to working with Government, the Small Business Commissioner and colleagues from across construction to make sure that the intent of these regulations is delivered and the opportunity to reshape construction is fully grasped”

Business Secretary Peter Kyle said:

“Far too many businesses are forced to shut down because they have not been paid – that is simply unacceptable.

“We are unveiling the strongest, most robust changes to payment laws in over a generation – laws that will transform the fortunes of small businesses for years to come and make their day to day lives much easier.”

Minister for Small Business and Economic Transformation, Blair McDougall said:

“I know first-hand how difficult late payments can be, forcing you to decide if you can afford to keep a business running, pay employees or even buy Christmas presents for your children.

“That is why I’m proud to be leading the charge on tackling a problem that has been left untouched for far too long.

“These are genuinely game changing measures that will ensure no business, no employer, no family has to endure the immense strain of being left strapped for cash they have already earnt.”

Emma Jones CBE, Small Business Commissioner said:

“We are on a mission to make life easier for small firms by getting money moving faster through the economy by tackling late payments. The measures the Government has announced today will strengthen the role of my office in taking on the worst payers alongside ensuring small businesses have a stronger voice on payment terms and late payment interest. These reforms will reduce the hours spent chasing debt allowing small businesses to focus on more productive and enjoyable growth.”

FIS has already met with officials to understand the extent and timline of this work and will keep members informed, but this is undoubtedly a positive day for all in the construction supply chain and a clear step towards a better payment culture in the sector.

You can see the published documents here: Late payments: tackling poor payment practices – GOV.UK

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