Payment Performance Update

Payment Performance Update

The requirement for larger businesses on a half-yearly basis on their payment practices, policies and performance for financial years came into effect on 6 April 2017. 

Businesses are in scope of the requirement for a financial year if, on their last 2 balance sheet dates, they exceeded 2 or all of the thresholds for qualifying as a medium-sized company under the Companies Act 2006 (section 465(3)). The thresholds relate to turnover, balance sheet total and average number of employees.

At the time of publication, these thresholds are:

  • £54 million annual turnover
  • £27 million balance sheet total
  • 250 employees

 The New Government has committed to extending the scope of against the following milestones:

Changes from January 2025

Under the Reporting on Payment Practices and Performance (Amendment) Regulations 2024, new reporting requirements have been introduced for companies in scope of the reporting requirement. These new requirements will apply in relation to each financial year of a company beginning on or after 1 January 2025.

These new requirements relate to:

  • the sum total of payments made during the reporting period
  • the percentage of payments that were paid during the reporting period which were not paid within agreed terms because of a dispute

Changes from March 2025

Under the Reporting on Payment Practices and Performance (Amendment) Regulations 2025, new reporting requirements have been introduced for companies in scope of the reporting requirement which use qualifying construction contracts. These new requirements will apply in relation to each financial year of a company beginning on or after 1 April 2025.

The requirements relate to retention practices, policies and performance where retention clauses are included in a qualifying construction contract.

These include:

  • a statement on whether the payment practices and policies of the business include or do not include retention clauses
  • where a business makes a statement that retention clauses are included in their construction contracts, further information must be submitted

Changes from April 2025 

Under The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024, the thresholds defining a medium-sized company are changing.

This change affects the thresholds for reporting payment practices, since this definition is used to determine which businesses are in scope of the regulations.

From 6 April 2025, the thresholds for reporting payment practices are:

  • £54 million annual turnover (up from £36 million)
  • £27 million balance sheet total (up from £18 million)
  • 250 employees (unchanged)

Businesses that meet 2 or all 3 of these criteria will be in scope to report their payment practices.

The information must be published through an online service provided by the government and will be available to the public.

Supporting Guidance

The Department for Business and Trade (DBT) has updated its guidance to the Reporting on Payment Practices and Performance Regulations setting out how companies should report on new metrics on retentions. Companies using retentions will be required to include the following information in their payment reports every six months: 

  • A series of statements covering the company’s policy on retentions, including when they are used, any standard terms, and the process for their release
  • The amount of retention withheld by the company from its suppliers, as a percentage of the amount withheld against it by its clients
  • The amount of retention withheld by the company from gross payments made to its suppliers, as a percentage of the gross amount paid to its suppliers.

The new metrics and they will apply to each financial year of a company beginning on or after 1 April 2025. This means that for companies with a financial year beginning on 1 January, their first reports containing the new metrics will be for the period 1 ‐ 30 June 2026 and need to be submitted by 30 July 2026.

The Fair Payment Code

The Fair Payment Code extends this with a voluntary committment.  This replaces the Prompt Payment Code and is likely to for a mainstay of requirement for particularly Public Sector Contracts. 

The Small Business Commissioner has announced the first companies to sign up to the new Fair Payment Code (FPC), which is on initial inspection, a bit thin on the ground with construction companies – John Sisk & Son, were an early signatory.

FIS encourages members wishing to apply to the FPC and complete the expression of interest form in order to receive an application form, and they will be awarded Gold, Silver or Bronze status depending on the time taken to pay invoices.

The importance of improving dispute resolution

The importance of improving dispute resolution

The Conflict Avoidance Coalition is launching a campaign to raise awareness of conflict avoidance and better dispute management. Conflict Avoidance Week 2025 is all about driving a cultural shift – fostering collaboration, cooperation, and communication across the construction industry. By raising awareness and sharing best practices, the Coalition wants to create:

  1. Stronger working relationships
  2. Smoother project delivery
  3. A more positive and productive work environment

Conflict Avoidance Week 2025 aims to highlight the importance of avoiding the time and expense associated with unnecessary disputes on construction and engineering projects. Instead, parties are encouraged to pursue resolution of issues through more collaborative efforts.

Conflict Avoidance Week will be officially launched on 24 March 2025 at an online event where delegates will hear from a range of industry professionals involved in conflict avoidance activities. You can register to join the launch event.

There will be an excellent line up of speakers, including FIS Chief Executive Iain McIlwee, our resident QS Len Bunton and Anthony Armitage from FIS member Thirdway to mention a few. They will be talking all things Pledge, highlighting upcoming activities, projects and plans, and showcasing real life conflict avoidance success stories.

The campaign encourages those associated with procurement and delivery of construction and engineering projects to commit to the Conflict Avoidance Pledge (www.capledge.org). Almost 600 organisations have signed the Pledge, indicating their commitment to maintaining business relationships and dealing with problems early and amicably. Businesses who have signed the Pledge have made this a keystone of their day-to-day commercial operations. Pledge signatories also commit to delivering value for money and working collaboratively to ensure projects are delivered on time, on budget and on par.

The Conflict Avoidance Coalition now comprises over 80 organisations, all associated with the procurement and delivery of construction and engineering projects. Participants include public and private sector clients, Tier 1 and Tier 2 contractors, trade organisations, and consultants.

The Week will be profiled via a range of events, maildrops, webinars and social media campaigns, all with a view to raising awareness.

Further information on Conflict Avoidance Week 2025, please contact the Coalition: CAPledge@rics.org

Fair Payment Code gaining traction

Fair Payment Code gaining traction

Last night FIS CEO attended the first Fair Payment Code Awards celebration recognising the first 100 companies who have been have achieved Bronze, Silver or Gold status on the newly structured code. FIS is encouraging members to sign up to the code.

The new Fair Payment Code is a tiered system of Awards aimed at driving best practice and improving payment performance.  It replaces the Prompt Payment Code and offers amore ambitious, aspirational and robust framework for encouraging a better payment culture, recognising that late payments and long payment times disrupt the cash flow cycle and can prevent a business from paying its bills, potentially resulting in business failure. In 2023 15% of small businesses and medium sized enterprises cited cash flow and late payments as an obstacle to running their businesses.

The Fair Payment Code encourages businesses across the UK to pay fairly and quickly.  Businesses apply for the Award tier which best suits them: Gold, Silver or Bronze. The system of Awards is aimed at driving best practice and improving payment performance. The three Awards are:  

  • Gold Award – for those firms paying at least 95% of all invoices within 30 days  
  • Silver Award – for those paying at least 95% of all invoices within 60 days, including at least 95% of invoices to small businesses within 30 days  
  • Bronze Award – for those paying at least 95% of all invoices within 60 days  

In addition, every business granted an Award agrees to abide by the Code’s principles of being Clear, Fair and Collaborative with their suppliers. 

The Fair Payment Code Awards are for two years, and every business needs to reapply for their Award at the end of each two-year period.  It is backed by a robust complaint system in place for businesses to highlight to the Office of the Small Business Commissioner Awardees that are not meeting the requirements of their Award category (Gold, Silver or Bronze) or not following the principles of the Code.  

FIS is encouraging all members to sign the code. The Small Business Commissioner, Liz Barclay, will be giving a sort address at the upcoming FIS Contractor Awards on the importance of getting behind the code and how it can help our community.

To sign the Fair Payment Code (and find out who else has), click here.

Notified Sums: More time to pay less?

Notified Sums: More time to pay less?

In the matter of Placefirst Construction Limited -v- CAR Construction (North East) Limited (2025) EWHC 100 (TCC), Hill Dickinson successfully acted for Placefirst Construction Limited (“PCL”) in its claim for declaratory relief and the consequential nullification of an adjudicator’s decision requiring PCL to pay a notified sum. 

What is a Notified Sum?

Given the recent finding that technical payment (often referred to informally as “smash and grab”) adjudications accounted for around 63% of all claims referred to adjudication in recent years (2024 Construction Adjudication in the United Kingdon: Tracing trends and guiding reform (Kings College London, the Adjudication Society)), those in the industry will be all too familiar with the smash and grab concept and what constitutes a “notified sum”

This notified sum regime has been the subject of countless adjudications and subsequent litigation in the TCC and beyond. 

The facts in PCL vs CAR

The key facts of the case are as follows:

  • PCL employed CAR to carry out certain works pursuant to an amended JCT design and build 2016 form of subcontract (“the Contract”).
  • As per the terms of the Contract, CAR was required to submit an interim application for payment (“AFP”) no later than the 25th of each month.
  • PCL was required to issue a payment notice not later than five days after the “due date” (as defined by the Contract), with the amount as specified in such payment notice to be paid on or before the “final date for payment” (as defined by the Contract).
  • PCL was also entitled to issue a pay less notice no later than two days before the final date for payment.
  • On 24 July 2024, CAR submitted an AFP by email for works valued up to 31 July 2024.
  • On 31 July 2024, PCL sent an email enclosing a “Payless Notice” and a separate excel document titled “Valuation 30”, contending that no payment was owed to CAR.
  • It was averred by CAR that a payment notice had not been issued, and that the pay less notice had been issued by PCL in advance of the date when it could have properly been issued under the Act and the Contract. 
  • It was therefore CAR’s position the amount claimed in CAR’s AFP (i.e., the notified sum) was due and payable on the final date for payment.
  • PCL’s position was that it had issued both a valid and effective payment notice and pay less notice.
  • The dispute was referred to adjudication, with the adjudicator deciding in favour of CAR.
  • PCL subsequently issued part 8 proceedings seeking declarations that, amongst other things, the Valuation 30 document enclosed with the email on 31 July 2024 constituted a valid and effective payment notice and that the pay less notice issued on the same date was equally valid and effective. 
  • CAR thereafter issued its own proceedings and made an application for summary judgment to enforce the adjudicator’s decision.
  • At a joint directions hearing convened by the court, PCL were successful in arguing that, in line with established principles and the TCC Guide, its claim concerned short and self-contained issues which could be determined without the need for disclosure or witness evidence, and on a summary judgment application, such issues were those that it would be unconscionable for the court to ignore.
  • It was therefore determined by the court that it was appropriate for its part 8 claim to be disposed of at the same time as hearing CAR’s application for summary judgment.

The key issues

The key issues for the Court to determine were as follows:

Was the payless notice valid and effective?

  • Pursuant to s110B(4) of the Act, a payee’s application for payment will be regarded as the default payment notice in circumstances where a payment notice is not given by the payer, that is if (as in this case) the contract permits or requires this AFP to be made before the date on which this payment notice can be given.
  • In deciding whether the pay less notice issued by PCL was valid and effective, the Court was required to determine at what point an application for payment would be regarded as the payee’s notice in default, and therefore in respect of s111(5)(b) of the Act, when a pay less notice could be issued.
  • It was submitted by PCL the effect of s111(5)(b) and s110B(4) of the Act when read together was that, if an AFP was to take effect as a payee’s notice in default, such application would take effect as the default payment notice on the date when it was issued (meaning that effectively the date of a default payment notice was contingent on whether or not a payer notice was issued). 
  • The contrary position advanced by CAR was that, as s110B(2) permitted a payee (default) notice to be given at any time “after” the date on which the payment notice was required to be given, the AFP would not be “deemed” the default payment notice until after this date, meaning the pay less notice was invalid, as it was issued before this point in time.

Was the Valuation 30 document issued with the payless notice sufficient to constitute a valid payment notice?

  • In determining this point, the Court was required to consider, as contended by PCL, whether the Valuation 30 excel document attached to PCL’s email on 31 July 2024 was intended as a separate document (i.e., not merely a document supporting the pay less notice attached), and if so, whether in substance, the Valuation 30 document in its entirety, or any of the worksheets within, which included a “payment certificate”, comprised the payment notice, and that such payment notice could be served simultaneously with a pay less notice and under the cover of the same communication.
  • CAR raised various arguments in support of its contention that Valuation 30 did not constitute a valid payment notice, with its position in essence that this document was purely subsidiary (and its purpose being to provide the supporting detail only) to the pay less notice which it alleged had been issued prematurely, rendering it invalid.

The decision

Insofar as whether PCL had issued a valid and effective pay less notice, the court found that there was nothing in the Act which provided that an AFP is deemed or otherwise treated as a payee notice in default only after the period for the payor to give a payment notice had elapsed. Instead, where no valid payment notice is served, any such AFP is to be regarded as a payee notice in default, and a pay less notice is required to be given not before the date of the payee notice in default (i.e. the AFP).

In practical terms therefore, the only requirement in respect of the timing of a pay less notice (where a payment notice has not – or is alleged to have not been served) is that the pay less notice is issued after the date of the AFP and not before. 

As to whether, in any event, PCL had, at the same time, issued a valid payment notice, the Court adopted a “substance over form” approach in ultimately concluding that it had done so, whilst agreeing with PCL that there was nothing to prevent it from serving both notices at the same time. It noted in particular that:

  • There was no requirement for Valuation 30 to refer to itself as a “payment notice”. In this case, Valuation 30 was described as a “sub-contractor payment certificate”;
  • There is no requirement that a payment notice has to state expressly that the sum stated was that which was considered due at the due date;
  • A payment notice can state a negative sum due and is not required to state a zero sum (notwithstanding this would not create an obligation on the payee to pay that negative sum).

With the Court determining that PCL had served both a valid payment notice and a pay less notice, it succeeded with its part 8 claim in all respects, meaning the adjudicator’s decision was void and unenforceable.

Commentary

If a payer has, on any objective analysis, sought to comply with its obligations to give the required notices in response to an AFP the Court will not take an “unduly legalistic interpretation of [the] requirements [of the Act] (Para 89 judgment)”. Essentially, the Court adopted a sensible approach in not penalising PCL for a perceived technicality. 

Given the draconian consequences which may follow in the absence of a paying party serving the required notices, the Court’s clarifications, and its adoption of a “substance over form” approach are both welcome. Our view is that the Court’s focus was very much on intent and clarity. 

The Court also noted, perhaps significantly, that a payment notice and a pay less notice is largely the same in terms of content and that both notices could be served at the same time (although serving both is not always necessary).

This case also serves as a useful reminder that, in certain circumstances and subject to certain conditions, including the court’s own availability, the Court will intervene and make determinations which prevent the enforcement of an adjudicator’s decision which is plainly wrong.

David Crone, Adam Kitchin and David Banks acted for PCL in these proceedings.

For further details on our property and construction law services, please contact us or a member of our property and construction law team.

Reporting on retentions

Reporting on retentions

Legislation to amend the Reporting on Payment Practices and Performance Regulations to introduce new reporting requirements on retentions has now been approved by Parliament, and large companies will be required to include the following information on retentions as part of the payment reports they submit every six months:

  • A series of statements confirming whether retention clauses are used and if so whether there are any standard terms
  • A description of the process for release of retention
  • A sum showing the overall value of retentions held by the company from its suppliers as a percentage of that held by its clients
  • A sum showing the total retention held from the company’s suppliers as a percentage of all money paid to suppliers.

These amendments to the Regulations will apply to each financial year of a company beginning on or after 1 April 2025, which means that for companies with a financial year beginning on 1 January, their first reports containing the new metrics will be for the period 1 ‐ 30 June 2026 and need to be submitted by 30 July 2026.

During the Parliamentary process, Minister for Services, Small Business and Exports Gareth Thomas highlighted Build UK’s payment performance table saying: “Its work shows a significant improvement in terms of payment, and we hope a similar level of improvement will be achieved by the requirements in this [Statutory Instrument]”. We are currently working with the Department for Business and Trade to update the guidance to the Regulations which is expected to be published in March.

Crown Commercial Service calls for suppliers to be certified to the Common Assessment Standard

Crown Commercial Service calls for suppliers to be certified to the Common Assessment Standard

Crown Commercial Service has confirmed that suppliers applying to its new Construction Works and Associated Services Framework, worth up to £80 billion, must be certified to the Common Assessment Standard developed by Build UK. The framework will run from October 2026 until October 2034, and the contract notice is now available.

With a growing list of organisations across both the public and private sectors using the Common Assessment Standard, members of the supply chain only need to obtain certification once from any of the Recognised Assessment Bodies. Companies keen to see a reduction in the bureaucracy of pre‐qualification should review the different certifications they hold to see if they have the Common Assessment Standard from more than one Recognised Assessment Body and whether that is required for any reason.

Help eliminate waste in Duplication of Pre Qualification Questionnaires
As part of the FIS Responsible No Campaign, FIS is also looking at the current failure for wholesale adoption of the Common Assessment Standard.

FIS is encouraging members to advertise their support for the Common Assessment Standard and adopt a Responsible No when they are confronted with behaviours and processes that undermine productivity, safety or responsible commercial practice.  To this end we are encouraging members to use a Responsible No when asked to complete multiple PQQs.  We accept that this is difficult in a commercial tender situation and time is often too tight, but we have prepared a short email that we suggest our members send to their client to help raise awareness of the efficiencies that the Common Assessment Standard brings.  This email template is available here Common Assessment Standard Template Email.

If companies are failing to adopt the Common Assessment Standard, please email info@thefis.org and we will follow-up independently (all information will be treated in the strictest confidence ensuring no member is named or disadvantaged in any way by our follow-up).