The government is preparing to appoint a small business commissioner to provide advice and consider complaints on payment issues. But how much power will they really have?

Rudi Klein

Following in the footsteps of the Australian state of Victoria we are to have a small business commissioner. Should small firms in construction be jumping up and down in expectation that they now have someone to champion their cause?

The role of the commissioner is set out in the 2016 Enterprise Act. It is two-fold:

  • The provision of general advice to small firms
  • Consideration of complaints concerning “payment matters” from small businesses relating to the supply of goods and services to larger businesses.

A small business is defined as having “staff of less than 50”. This would apply to the overwhelming majority of firms in the industry; regulations will be introduced to amplify this definition. All other businesses will be classed as “larger businesses” provided that they have a UK place of business and are not a public authority.

There is no definition of “goods and services” but, given the broad aim underlying the commissioner’s role – to improve payment practices in commercial transactions – this phrase is likely to include construction works.

Of particular interest is the commissioner’s role in relation to determining complaints about ‘payment matters’

Of particular interest is the commissioner’s role in relation to determining complaints about “payment matters”. For this purpose the commissioner is required to establish, maintain and administer a complaints scheme. “Payment matters” include “a request or other act, or a failure to pay or other omission”. Such request must relate to payment for or in connection with the supply of goods and services, or in connection with the relationship governing the supply as between the large and small businesses.

“Payment matters” could, therefore, embrace a multitude of sins. But, before we go any further, any construction complainants rushing to the commissioner will need to stop and ask themselves this question: is there a statutory right to refer the particular complaint to adjudication? If the answer is, yes, the act excludes such complaint from the commissioner’s remit.

So what is left? Small firms should be able to refer onerous payment terms (not the price) to the commissioner. These could, include, for example, lengthy payment cycles or condition precedent clauses making payment entitlement conditional on executing documents such as bonds or warranties.

Clauses that do not comply with statutory requirements could be the subject of a complaint – such as clauses not complying with the 30 day payment requirement under the Public Contracts Regulations 2015. The commissioner could also deal with complaints about retrospective rebates or fees for preferred supplier status. No doubt, we’ll be seeing some contractual clauses that bar attempts to complain to the commissioner. Instead of declaring such clauses invalid, the act – strangely – gives you the right to complain about them.

The commissioner will determine a complaint according to what is, in their opinion, ‘fair and reasonable in all the circumstances of the case’

Regulations are likely to be issued to put some “flesh” on the complaints scheme. But, for the present, the act states that the commissioner “must” give the respondent and “may” give the complainant an opportunity to make representations. Either party may be required to provide relevant information or documents. The commissioner is required to act impartially as between both parties.

The commissioner will determine a complaint according to what is, in their opinion, “fair and reasonable in all the circumstances of the case”. They will issue a written determination which may (or may not) make recommendations. The recommendations may indicate the steps to be taken by either party to “remedy, resolve or mitigate” issues which are the subject of the complaint. Such recommendations will not be legally binding.

The commissioner is accountable to the secretary of state at the Business Department. They will have to publish an annual report on their activities; this should summarise the most significant issues raised by small businesses. Every three years the business secretary will review the commissioner’s performance in relation to improving payment practices.

I suspect that the small business commissioner will not be the first port of call for complaints about payment issues. The existence of statutory adjudication will reduce the number of potential complaints. Moreover, the climate of fear in the industry will militate against complaints being made. Assuming that the commissioner makes a recommendation this can be ignored.

But there is a positive. The commissioner can publish a report of their determinations (while preserving the anonymity of the complainants). Over time these determinations could provide a set of benchmarks of what is/not acceptable as far as payment practices are concerned.

Professor Rudi Klein is a barrister and chief executive of the Specialist Engineering Contractors’ Group