Last year the Office of Government Commerce launched its Guide to Best Fair Payment Practices. It came into force on 1 January this year and applies to all public sector works contracts.

Procurers and members of the delivery team will have to sign a Fair Payment Charter. Over the next four pages, we look at what the guide and charter say, and whether they spell the end to bad payment practices

Much of the fair payment guidance, which was endorsed by the Public Sector Construction Clients’ Forum and bodies representing the construction industry, is devoted to project bank accounts. You can read more about these in the columns by Ann Minogue and Tony Bingham. The guide indicates that the taxpaper would save at least £750m if project bank accounts and fair payment practices were applied.

Although the guidance is directed at the public sector, private sector clients will be encouraged to adopt it too. Barclays Bank and Bank of Scotland have produced standard documentation for setting up project bank accounts and Rider Levett Bucknall, the construction consultant, has produced project bank accounts training packages for clients and the supply chain.

Clients are requested to monitor compliance with the guidance (including their own compliance). The OGC is also monitoring compliance with the charter and the take-up of project bank accounts. It will report on progress in January 2010.

Fair payment the key points

  • Deliberate late payment or unjustifiable withholding is not acceptable
  • If clients are not applying retentions, they should not be applied along the supply chain
  • Payment periods not to exceed 30 days
  • Payments will be made by electronic BACS transfer
  • The guide makes clear that:
  • Past payment performance will be a key prequalifying criterion in the selection of lead contractors
  • Clients may wish to pay subcontractors directly
  • Subcontractors involved at the design stage should be paid for their time on a fee basis
  • Valuation processes should be replaced by milestone payments and payment schedules.