There will be a 60-day time limit on large firms paying their suppliers after the government unveiled late payment reforms – garnering praise from the National Federation of Builders (NFB).
There will also be mandatory interest on late payments, with commercial contracts including statutory interest set at 8% above the Bank of England base rate.
There will be new powers for the Small Business Commissioner, including adjudication of payment disputes, while persistent poor payment offenders may face multi-million-pound fines.
James Butcher, deputy chief executive of the NFB, said: “Poor payment practice closes businesses, hinders growth and has been a persistent challenge for the construction industry.
“After years of tweaks without teeth and promises without action, this government has acted swiftly to announce measures that industry has spent decades calling for.”
Reforms will require primary and secondary legislation, and the construction industry will see further engagement to consider how the reforms will operate with their contract models.
Rico Wojtulewicz, director of policy and market insight at the NFB, said: “The government must be congratulated for staying the course to tackle poor and late payers. Too many before them have shirked the responsibility.
“For construction, the main challenge will be the ban on retentions. Retentions are used to ensure performance, compliance and completion but we understand why the government’s hand has been forced by unscrupulous businesses abusing them to pay less and/or balance shaky accounting.
“We therefore thank the government for hearing our recommendation to further consult on the ban’s implementation. This period creates breathing room for adjustment and offers time to progress alternatives, such as accessible surety bonds or insurance.”
On the broader industry challenges relating to retentions, Wojtulewicz added: “We will also be reminding the government that they must continue to pursue the planning and procurement reforms intended to enable work pipelines for SMEs and regional construction companies.
“The use of retentions grew because regulatory costs made it difficult for constructors to plan work pipelines and afford direct employment, consequently increasing a reliance on sub-contractors where performance was managed through the retention process.
“Should the government’s planning and procurement reforms succeed, thousands of businesses may again become financially resilient enough to directly employ.”
