Debt in the construction industry

In very general terms, the word ‘debt’ refers to a sum of money that is owed. Being in debt is the state of owing money.

Construction 2025, the government's long-term vision for the future of the construction industry, cited equitable financial arrangements and certainty of payment as critical success factors for the industry and proposed a need to ‘...create conditions for construction supply chains to thrive by addressing access to finance and payment practices.’

The Housing Grants, Construction and Regeneration Act 1996 (also known as the Construction Act) includes provisions to ensure that payments are made promptly throughout the supply chain.

In addition, other initiatives have been introduced such as the prompt payment code, the construction supply chain payment charter, the Small Business, Enterprise and Employment Bill and project bank accounts.

The Late Payment of Commercial Debts (Interest) Act provides for simple interest to be payable on outstanding debts at a penal rate of 8% above the Bank of England base rate. Additional penalties can also be levied. The Late Payment of Commercial Debts Regulations bolster the provisions of the Late Payment of Commercial Debts (Interest) Act.

However, debt remains a very serious problem for the construction industry, which is heavily dependent on predictable cash flow. Late payment and non-payment continue to be common and can have a significant impact, cascading down an entire supply chain and putting businesses under financial strain.

Articles about debt on Designing Buildings include:

• Assignment of debt.
• Bad debt.
• Cash flow.
• Construction supply chain payment charter.
• Debt assignment.
• Fair payment practices.
• Housing Grants, Construction and Regeneration Act.
• Late payment.
• Overdue debt.
• Pre-action protocol for debt claims.
• Project bank accounts.
• Prompt payment code.
• Small Business, Enterprise and Employment Bill.