Proposal part of series of measures unveiled by business secretary
The government has unveiled plans to abolish retentions in construction under a series of measures announced by the business department today.
It said the measures were part of the toughest crackdown on late payment in more than 25 years – since the 1998 Late Payment of Commercial Debt Act.
It said the Small Business Commissioner will be given sweeping new powers to investigate poor payment practices, adjudicate payment disputes, and fine the worst offenders – with penalties worth tens of millions for firms that persistently pay late or fail to comply with the new laws.
And in a statement, the Department for Business and Trade added: “We also propose to ban the withholding of retention payments under the terms of construction contracts, consulting on its implementation. This will prevent small firms losing retentions to insolvency or non-payment.”
The changes will include a new 60-day cap on payment terms on all large firms when paying smaller suppliers. New mandatory interest on late payments will also be introduced, with a requirement for all commercial contracts to include statutory interest set at 8% above the Bank of England base rate.
Business secretary Peter Kyle said: “Far too many businesses are forced to shut down because they have not been paid – that is simply unacceptable.
“We are unveiling the strongest, most robust changes to payment laws in over a generation – laws that will transform the fortunes of small businesses for years to come and make their day to day lives much easier.”
Under the proposals, which will be subject to consultation, boards or audit committees of persistently late-paying large companies will also be required to publish explanations for poor payment performance and the actions they are taking to address it.
A welcome move to outlaw retentions directly
The Construction Leadership Council has campaigned since at least 2019 to bring an end to the practice of retention payments across the sector, writes Mark Reynolds.
For smaller firms up and down the country, late or non-payment of retentions is one of the primary risks that can lead to insolvency. The current status quo drives instability and restricts much-needed investment in the industry.
Over the past half a decade, industry and clients have been unable to agree how to move away from retentions and so it is welcome that Government has decided to intervene directly to outlaw them entirely.
The vast majority of construction businesses in the UK are small-to-medium sized enterprises and will also benefit from the broader package of measures on payment announced today, which will help to establish a fairer enforcement regime and more transparency around payment terms.
The CLC will continue to work closely with the Department for Business and Trade as they develop the timeline and process for implementing this package of measures. The abolition of retentions will be a substantial change to how we operate. We recognise that both clients and the supply chain will need time to adapt and establish alternatives that effectively incentivise high-quality work and limit defects in construction.
Mark Reynolds is executive chairman of Mace Group and CLC co-chair
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