Government has backed up commitments to tackling the scourge of late payments and retention in the construction sector by seeking views on a package of proposed legislative measures.   The package of new measures is claimed to be the most significant attempt to address late, long and disputed business to business (B2B) payments in over 25 years.

The consultation recognises that late payment impacts 1.5 billion businesses and ultimately costs the UK economy almost £11 billion per year and closes down 38 UK businesses every day.  Commenting on the launch of this consultation on 30th July, the Prime Minister, Kier Starmer stated:

“From builders and electricians to freelance designers and manufacturers—too many hardworking people are being forced to spend precious hours chasing payments instead of doing what they do best – growing their businesses.

“It’s unfair, it’s exhausting, and it’s holding Britain back. So, our message is clear: it’s time to pay up.

“Through our Small Business Plan, we’re not only tackling the scourge of late payments once and for all, but we’re giving small business owners the backing and stability they need for their business to thrive, driving growth across the country through our Plan for Change.”

The consultation proposes the following package of legislative measures:

Policy	Description
1. Audit committees and board-level scrutiny of large company payment practices	In September 2024, the government reaffirmed commitments to legislate on audit committees and other board level responsibilities to improve payment practices. The government believes further positive change could be achieved by increasing discussion and scrutiny of large companies’ payment practices at board level.We would welcome views on how government could best achieve this in the future with proportionate regulatory burden. For example: A. Ensuring audit committees or company boards, where companies have them, provide commentary and make recommendations regarding payment performance to company directors before the data is submitted to government and included in the director’s report. This would include data provided as part of the Reporting on Payment Practices and Performance Regulations 2017, and any interest on late payment liabilities. B. Ensuring the Small Business Commissioner writes to audit committees and company boards, where companies have them, when i) undertaking payment performance reporting assurance and ii) when investigating any other matter relating to a companies’ payment practices. We would welcome views on these ideas, including the likely positive effects, costs, or any unintended negative consequences. We would also welcome other additional ideas to encourage greater discussion of payment practices at board level.
2. Maximum payment terms	The policy will amend The Late Payment of Commercial Debts (Interest) Act 1998, removing the exemption that allows businesses to agree to payment terms longer than 60 days if considered not ‘grossly unfair’. This will effectively limit payment terms between UK businesses to 60 days. Subject to further consultation, this policy may subsequently reduce this limit from 60 days to 45 days after 5 years.
3. A deadline for disputing invoices	The policy will amend The Late Payment of Commercial Debts (Interest) Act 1998, introducing a 30-day invoice verification period. Businesses who wish to raise a dispute will need to do so within 30 days of receiving an invoice, otherwise they will be liable to pay the invoice in full within the agreed payment terms, alongside any statutory interest or debt recovery costs if the invoice is paid late.
4. Mandatory statutory interest	The policy will amend The Late Payment of Commercial Debts (Interest) Act 1998, making the statutory interest rate payable on late payments mandatory. This will remove the ability to negotiate compensation rates lower than the statutory rate. This will increase existing financial incentives to pay invoices on time.
5. Additional reporting on statutory interest	The policy will amend The Reporting on Payment Practices and Performance Regulations 2017 to include additional reporting requirements around statutory interest liabilities. This will further increase transparency around poor B2B payment behaviour and informs other policies that aim to improve the utilisation and payment of statutory interest.
6. Financial penalties for persistent late payers	The policy will introduce new legislation, which gives the SBC powers to issue financial to businesses who persistently pay their suppliers late. The policy will use payment behaviour data submitted by businesses under The Reporting on Payment Practices and Performance Regulations (2017) to identify and issue financial penalties to persistently late-paying businesses, with penalties based on businesses’ unpaid statutory interest liability.
7. Additional powers for the SBC, including assurance of payment reporting data	The policy will amend The Enterprise Act 2016 to give additional powers to the SBC. The additional powers would improve the SBC’s ability to conduct investigations into poor B2B payment behaviour (beyond its current complaints scheme), allow it to provide legally binding arbitration in disputes, and impose financial penalties or make arbitration awards after an investigation or arbitration process.The policy will also enable the SBC to investigate the accuracy of the payment reporting data that large businesses provide under The Reporting on Payment Practices and Performance Regulations 2017. This will improve the quality of reporting data and support the reporting regulations original objectives of improving transparency around B2B payment behaviour.
8. Use of retention clauses in construction contracts	The policy will amend Part 2 of the Housing Grants, Construction and Regeneration Act (1996), to either prohibit the use of retentions or to introduce requirements to protect retention funds deducted and withheld from insolvency and late or non-payment.

Commenting on the consultation FIS CEO Iain McIlwee stated.

“This is a very welcome piece of work to get our teeth into over the summer, but on the surface is a very good set of measures and encouragingly consistent with the asks in our Blueprint for Better Construction.  Greater scrutiny and tougher sanctions are needed.  Point 8 really jumps off the page when we think about reform in the context of construction.  Mismanagement of Retention remains a contentious and concerning problem that undermines trust, liquidity and with it the wider improvements in culture, investment and productivity that we need to see in construction.

FIS, along with a chorus of associations across construction, has long advocated for reform, but we have seen little action, just roadmaps and bluster. Tackling this in the Construction Act is the only way we will realistically see change.  Our position remains that the Act  should be amended to ensure retentions are automatically released at a defined date. They should not require additional applications from contractors or relate to dates that are not explicit to the completion of their works and events beyond their control.  Additionally, the UK should seek to replicate the recent developments in New Zealand where it has been legislated that retentions are held in trust.  When Collateral Warranties are implemented, retentions should be immediately and automatically returned.”

The consultation will run from 31 July 2025 to 23 October 2025. We are encouraging businesses to have their say. You can respond directly, but please feed in your views to FIS so that they can incorporate your views into their collective response.   Please email any comments to iainmcilwee@thefis.org

One of the 7 core objectives of FIS is to provide:

A voice to lead positive change and champion the sector and membership.

This is something we are doing all the time as we work directly talking to civil servants and politicians.  Below is a snapshot of what this looks like over the past couple of months.

On better working and culture, in the last few weeks, we have:

• Met with Lord Aberdare, Baroness Anderson and colleagues from the Cabinet Office to talk about the effective implementation of project bank accounts on Public Sector Works. We also met this week with a representative of Australian Government to understand the difference between our respective legislative approaches.
• Supported the Construction Leadership Council’s Working Group on improving insurance Provision
• Responded to the Department for Business consultation on better support for Small Businesses and Start-ups. The key recommendations in our response have been discussed with David Robertson MP and his team (David has been a strong advocate for SMEs in construction).
• Continued to support the Conflict Avoidance Coalition via their steering Group and published a white paper through the Coalition based on a Round Table that we organised with representatives from our community and the wider construction sector on Rethinking Contracts. An initial output from recommendations from this Round Table were the simplified contracts FIS published in July.
• FIS continues to support the Wales Industry Stakeholders Group and Construction Industry Collective Voice in Scotland to feed in on devolved matters.
• The FIS Responsible No Campaign has been extended to cover over-zealous inspections in our Shine a Light Campaign.

On Compliance and Regulation, we have:

• Represented specialist contractors and their supply chain at a Building Safety Regulator focus group led by Build UK. The focus of discussion was Gateway 3 and how we limit friction at that stage of higher risk building applications.
• Attended a number of online and face to face meetings with the Ministry of Housing and Local Government organised by the Construction Products Regulation looking primarily at the impact of changes to the Building Regulation with respect to the adoption of European Standards and classification and how assessments will work.
• We also met separately with the Construction Products Regulator to discuss our recent response to the White Paper.
• FIS has been working closely with NHBC on new training to support compliance on house building sites that is due for roll-out in the Autumn.
• FIS also met with representatives of the Home Builders Federation H&S Working Group to discuss a more joined up approach to improving safety associated on site (particularly manual handling and dust related matters).
• FIS continues to support the cross-industry technical forum Passive Fire Knowledge Group (that have recently published Knowledge Share 8 – Structural Steelwork Interfaces and Knowledge Share 9 – Use of Tested Or Certified Penetration Seal Details For Fire Stopping Of MEP Services.

On Skills and Training:

• FIS have been attend weekly meetings with the Department for Education and Skills and Skills England, helping to support the new Construction Skills Mission Board. Our detailed submission to the call for evidence from the Board (which met for the first time in July) is available here.  This response was developed in consultation with the FIS Skills Board.
• FIS met with Minister of State for Skills, Apprenticeships and Higher Education Hon Baroness Smith in a RoundTable set up by CITB and NHBC to bring together senior leaders from across the house-building industry to discuss the skills challenges facing the industry and share insight with the Minister.
• FIS is Chairing a Working Group reporting to the Building Safety Regulator’s Industry Competence Committee (ICC) writing, improving and supporting the implementation of competency standards for trade workers in the “Interiors Sector”. We are also reviewing a new standard for Occupational Work Supervisors.
• FIS has been invited to join a cross-industry Task and Finish Group (through the ICC) looking at definitions and requirements for Organisational Capability requirements set down in the Building Regulators.
• FIS are next week attending the CITB Board meeting to discuss concerns that led to FIS voting “No” to the Levy Proposals. To try and support better flow of levy to employers, FIS has agreed and to co-chair the development of a new Sector Plan for Commercial, Industrial, High-rise Residential and Public Sector Buildings (and provide oversight for a c£3m investment  in skills in the sector).

On Sustainability:

• As an active member of the Green Construction Board feeding in directly on policy and collaborative action.
• FIS contributed to British Land fit-out strategy consultation. British Land presented the Strategy to members at the last Sustainability Leadership Group meeting
• FIS have been working closely with the Department for the Environment Circular Economy Task Force (who attended the recent FIS Sustainability Leadership Group meeting to advise on progress and plans. FIS Project Re-use has gained a lot of interest as an industry led initiative looking to catalyse change.
• FIS met with Department for Environment Sustainability and Net Zero to discuss skills need for retrofit and sustainable refurbishment.
• FIS continue to support the City of London Corporation’s Skills for a Sustainable Skyline as a Strategy Board Member. Through this project the City of London Corporation have done a significant amount of research and structured engagement across the  sector and have now launched a dedicated Skills and Employment hub for London.  They are now working directly with the London Boroughs and employers in the Capital to look at more effective management of Section 106 Social Value Interventions.

FIS have also been working closely with the New Hospitals Programme (NHP), attending a Round Table at the Department of Health looking at the readiness to deliver the 40 new hospital buildings required by 2030.  All of the above topics have come up! Follow-up meetings have focussed on how to better integrate innovation in the process through better collaboration with the supply chain.  Representatives of NHP will be attending upcoming FIS Working Group meetings in 2025.

When you talk to FIS, we listen and try to reflect your views effectively to the right people so that we are building a better  future together.

 

For more on FIS Campaigns, visit the FIS Campaigns Hub here.