Removing retentions, introducing tighter payment deadlines and strengthening enforcement should improve payment practices across the industry. The question is whether the changes are enough to address the problems which the industry says matter most, David Crosthwaite writes
The most significant intervention in construction payment practice in a generation has entered committee stage in the House of Lords (on 21 July). Whether it addresses the industry’s biggest payment problems, however, remains an open question.
For construction, three of the bill’s most significant changes concern payment periods, retentions and enforcement. It caps the final date for payment on private sector construction contracts at no more than 60 days after the payment due date.
It also phases out retentions through a two-year transition period. Retention clauses agreed during that period become ineffective at the end of the third year, after which outstanding transitional retained sums must be paid through a statutory payment timetable. Unauthorised retentions after the transition carry a penalty of the higher of £40 or 50% of the retention debt.
Finally, it strengthens the Small Business Commissioner through new investigatory and enforcement powers, financial penalties for persistent poor payment practices and a new adjudication scheme for qualifying payment disputes involving small businesses.
These changes will not be felt evenly. For clients and funders, the immediate impact is likely to centre on contract administration and alternative approaches to managing performance risk.
Main contractors face a more significant adjustment. They lose a familiar mechanism for withholding part of the contract sum as security for completion and the correction of defects, at the same time as retentions held against them by their own clients disappear.
For subcontractors, the retentions ban is the clearest benefit on offer, removing exposure to retained sums that can become unsecured debts if a contractor higher up the supply chain becomes insolvent.
Construction consistently accounts for more company insolvencies than any other sector, with firms categorised as providing specialised construction activities representing the largest volume within the industry
Government data on large business payment practices suggests that construction is not especially out of step with the wider economy. In 2025, construction businesses covered by the reporting requirements took an average of 33 days to pay their suppliers, close to the all-sector median of 32 days, with 14% of invoices paid late by number and 13% by value, again broadly in line with other sectors.
Company insolvency data, however, paints a different picture. Construction consistently accounts for more company insolvencies than any other sector, with firms categorised as providing specialised construction activities representing the largest volume within the industry. This includes companies typically working on a subcontract basis, from demolition and site preparation to electrical and plumbing installation, as well as finishing trades.
BCIS polling suggests the industry’s biggest payment frustrations extend beyond the scope of the bill. Asked what is currently the biggest cause of payment problems, respondents pointed overwhelmingly to payment disputes (24%), supply chain practices and culture (22%) and long contractual payment periods (21%). Retentions barely featured, cited by just 2%.
Two of those leading causes are only partly addressed by the bill. Disputes over valuation, certification and payment notices remain largely governed by the existing construction payment regime. The new 60-day limit constrains the final date for payment rather than the processes that determine what becomes due and when.
Construction contracts are also excluded from the bill’s new fixed-sum penalty for disputes raised late to delay payment, despite payment disputes being the single most cited problem in our poll. Supply chain culture fares no better. As a behavioural issue rather than a contractual one, it largely sits beyond the bill’s reach.
The industry sees the retentions ban as an important structural reform, even though retentions are not its biggest day-to-day payment concern
Yet, when we asked which proposal would have the biggest impact on construction, the retentions ban came out clearly on top, chosen by 35% of respondents to BCIS’s poll, more than double the 16% who chose the 60-day payment cap. Cost consultants, our largest professional group in the poll, showed the same pattern, with 34% selecting the retentions ban compared with 13% for the payment cap. Surveyors were considerably less certain, with 48% saying they simply did not know which proposal would matter most.
Taken together, these findings suggest that the industry sees the retentions ban as an important structural reform, even though retentions are not its biggest day-to-day payment concern. Instead, construction professionals point to payment disputes, contractual practices and supply chain behaviours as the issues they encounter most often, areas where the bill’s impact is likely to be more limited.
That does not diminish the significance of the legislation. Removing retentions, introducing tighter payment deadlines and strengthening enforcement should improve payment practices across the industry. The ban may also create unintended new costs if clients and contractors replace retentions with bonds, guarantees or other forms of security that are more expensive or harder for smaller firms to obtain.
As the bill progresses through Parliament, the key question for the government is whether the changes are enough to address the problems which construction professionals say matter most.
Dr David Crosthwaite is the chief economist at the Building Cost Information Service (BCIS)
No comments yet