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New legislation proposed to tackle payment abuse

27th January 2020

In the wake of the lack of effective measures to deal with payment abuse following the Carillion collapse two years ago, Labour peer Lord Mendelsohn will introduce a new payment Bill.

Lord Mendelsohn has taken up representations from the leading construction body, the Specialist Engineering Contractors’ (SEC) Group and others, to improve payment security for SMEs.

The Bill will incorporate and range of measures to tackle poor payment practices head on. These include a statutory limit of 30 days in which all firms will be required to discharge due payments.

In addition given the crippling costs of adjudication, small firms in construction will be able to refer payment disputes to the Small Business Commissioner. The remit of the Small Business Commissioner will be expanded to confirm that it includes construction and the Commissioner will have powers to impose penalties on large companies which are serial late payers, provide false payment performance data and fail to provide requested information as part of investigations.

Late payment cost the supply chain millions and the Bill’s measures also include for accrued interest on late payments to be automatically included in due payments (without the need to separately claim it).

Certain unfair payment practices will be outlawed such as sub-contractors having to pay fees to get on main contractors’ preferred lists of suppliers and payment of fees to get paid earlier under supply chain finance schemes.

To continue the process of protecting supply chain money the Bill would amend the Public Contracts Regulations 2015 to mandate the use of project bank accounts for public sector works over £500,000.

Professor Rudi Klein, SEC Group’s CEO, paid tribute to Lord Mendelssohn: “I wish to place on record my thanks to Lord Mendelsohn and also the thanks of SMEs in the UK’s construction industry which have had to bear the impact of payment abuse and losses from major insolvencies in the industry.”

“The construction industry is in the midst of an insolvency crisis with 2019 insolvencies likely to overtake by a wide margin the figure of 3,013 insolvencies in 2018.  The Government’s manifesto for the recent election made clear that it would “clamp down on late payment” but, since Carillion’s collapse, all we have had are numerous consultation documents.”

Published in Spector magazine