Last edited 14 Jun 2018

Fair payment practices for construction

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. These provisions include:

Interestingly, the HGCRA does not stipulate payment periods, simply providing that parties are free to agree what payments are due and when, i.e. the contract must set out an adequate mechanism for determining these matters. In default, the Scheme for Construction Contracts applies providing a payment period of 17 days from the due date to the final date for payment.

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.

Introduced in 2013, The Late Payment of Commercial Debts Regulations bolster the provisions of the Late Payment of Commercial Debts (Interest) Act. The Regulations amend the Act by imposing limits on payment periods of:

  • 30 calendar days when the purchaser of goods/services is a public authority.
  • 60 calendar days when the purchaser is another business, but this can be extended if expressly agreed in the contract and provided it is not grossly unfair to the supplier.

The Regulations also:

  • Impose a limit of not more than 30 calendar days (before the payment period begins) for the purchaser to verify the conformity of goods/services are in accordance with the contract - but this period can be exceeded by agreement and provided it is not grossly unfair to the supplier.
  • Allow the supplier compensation for its reasonable costs of debt recovery above the fixed costs currently recoverable under the Act (£40 for debts of under £1,000, £70 for debts of under £10,000 and £100 for debts over £10,000).

See The Late Payment of Commercial Debts Regulations 2013 for more information.

On public sector projects, the OGC Guide to best fair payment practices (endorsed by the Public Sector Construction Clients’ Forum which recommends adoption of its principals by public sector clients) sets out additional procedures for public sector projects.

The procedures are intended to ensure transparent, and proper payments are made to the main supply chain members within 30 days. They can been integrated into JCT (Joint Contracts Tribunal) contracts by making amendments set out in the JCT Public sector supplement.

The recommendations in the OGC Guide to best fair payment practices include:

NB: The Office of Government Commerce (OGC) has now been absorbed into the Efficiency and Reform Group (ERG) within the Cabinet Office. OGC guidance has been archived, however, it is cited in the Government Construction Strategy and the Common Minimum Standards, and links are provided to OGC documents from government websites such as the Major Projects Authority.

To supplement these existing measures, the Construction Leadership Council launched a voluntary Construction Supply Chain Payment Charter on 22 April 2014. See Construction Supply Chain Payment Charter for more information.

The 2015 Public Contracts Regulations require that public bodies in England include a 30-day payment clauses in supply chain contracts. In October 2016, a guidance note was published by the government making clear that this is 30 days from the issue of a payment notice.

NB: From 6 April 2017, the Small Business, Enterprise and Employment Bill requires that large companies publish:

See Small Business, Enterprise and Employment Bill for more information.

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