The government is consulting on new legislative measures to tackle late payments in all sectors and to reform retentions in construction contracts.
In our previous blog, we covered the new regulations requiring large companies operating in the construction industry to report on retention sums withheld from suppliers. The government is now considering further measures to address retentions in construction contracts and to tackle late payments across all sectors.
The government has recently issued a consultation on a package of proposed legislative measures: Late payments consultation: tackling poor payment practices. The objective of the government's proposals is to improve business-to-business payment behaviour and stop late payments across all sectors.
One of the measures proposed which is specific to the construction sector is an amendment to Part 2 of the Housing Grants, Construction and Regeneration Act 1996, to either prohibit the use of retentions in construction contracts completely, or to introduce requirements to protect retention sums by placing the money in segregated bank accounts and protecting it using insurance-backed instruments of guarantee. Abolition of retentions is supported by some industry bodies, such as Build UK.
As well as additional reporting requirements and financial penalties for persistent late payers, some of the other proposed legislative changes include:
- Mandatory statutory interest: An amendment to The Late Payment of Commercial Debts (Interest) Act 1998, making the statutory interest rate payable on late payments (currently 8% over the base rate) mandatory. Businesses would no longer be able to negotiate interest rates that are lower than the statutory rate.
- Maximum payment terms: An amendment to The Late Payment of Commercial Debts (Interest) Act 1998, removing the exemption that allows businesses to agree to payment terms longer than 60 days where they are not 'grossly unfair'. This could subsequently reduce to 45 days after 5 years, subject to further consultation.
- Deadline for disputing invoices: An amendment to The Late Payment of Commercial Debts (Interest) Act 1998, introducing a 30-day invoice challenge deadline. Businesses wishing to dispute an invoice will need to do so within 30 days of receipt, or will otherwise be liable to pay the invoice in full (within the agreed payment terms), plus any statutory interest if the invoice is paid late.
The consultation is open for responses until 23 October 2025.
The government has also recently issued draft regulations under which in-scope companies will be required to include certain information regarding their payment practices in their annual report and accounts. For further details, see Payments practices – summary of payment practices in annual reports and other measures to tackle late payments.
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