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Last edited 10 Nov 2025

Remedies for late payment in the construction industry

1 Introduction
2 Reporting on Payment Practices and Performance (Amendment) Regulations
3 The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations
4 The Late Payment of Commercial Debts (Interest) Act
5 The Late Payment of Commercial Debts Regulations
6 The Housing Grants, Construction and Regeneration Act
7 Other remedies
8 Prompt payment code
9 Fair Payment Code
10 Construction supply chain payment charter
11 Small Business, Enterprise and Employment Bill
12 Late payment initiatives
13 Related articles on Designing Buildings
14 External references

[edit] Introduction

Late payment of invoices is a problem for most suppliers of goods and services. In tough economic times the problem gets worse as cash retention becomes a greater priority. It is frequently the largest and most powerful client groups who are the worst culprits.

In the construction industry squeezing sub-contractors and suppliers is almost 'accepted practice'. A survey of 250 small construction companies in November 2012 found that 97% felt unfairly treated by main contractors, and just 5% of all work was paid for within 30 days.

In March 2016, the Euler Hermes Quarterly Overdue Payments Report found that late payments in the construction industry rose by 27% during 2015. However all suppliers of services have statutory rights as well as those provided by contract.

More recently in July 2025, under the Labour government issues surrounding late and poor payment practices were tackled further, in what it called "the most significant legislative reforms in 25 years - an issue that costs the UK economy £11bn a year and shuts down 38 businesses every day". With the "UK set to have the toughest late payments laws in the G7 as part of reforms to back small businesses and unlock growth as part of the Plan for Change. New £4bn finance boost including 69,000 Start-Up Loans to inspire the next generation of entrepreneurs and small business owners"

[edit] Reporting on Payment Practices and Performance (Amendment) Regulations

Under the Reporting on Payment Practices and Performance (Amendment) Regulations 2024, new reporting requirements have been introduced for companies in scope of the reporting requirement. These new requirements will apply in relation to each financial year of a company beginning on or after 1 January 2025.

These new requirements relate to: the sum total of payments made during the reporting period and the percentage of payments that were paid during the reporting period which were not paid within agreed terms because of a dispute

From March 2025 also under the Reporting on Payment Practices and Performance (Amendment) Regulations but 2025 revision, new reporting requirements were introduced for companies in scope of the reporting requirement which use qualifying construction contracts. These new requirements apply in relation to each financial year of a company beginning on or after 1 April 2025.

The requirements relate to retention practices, policies and performance where retention clauses are included in a qualifying construction contract. These include: A statement on whether the payment practices and policies of the business include or do not include retention clauses and where a business makes a statement that retention clauses are included in their construction contracts, further information must be submitted

[edit] The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations

Under The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024, the thresholds defining a medium-sized company are changing. This change affects the thresholds for reporting payment practices, since this definition is used to determine which businesses are in scope of the regulations. From 6 April 2025, the thresholds for reporting payment practices are outlined below and businesses that meet 2 or all 3 of these criteria will be in scope to report their payment practices.:

£54 million annual turnover (up from £36 million)
£27 million balance sheet total (up from £18 million)
250 employees (unchanged)

The Government has also laid draft 2025 ammeded legislation, "The Companies (Directors’ Report) (Payment Reporting) Regulations 2025" to require companies to include their payment results in their Directors’ reports from 1 January 2026 and has also published a public consultion on further measures to improve payment practices: "Late payments consultation: tackling poor payment practices", published 30 July 2025, as part of its Small Business Plan.

[edit] The Late Payment of Commercial Debts (Interest) Act

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.

[edit] The Late Payment of Commercial Debts Regulations

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.

[edit] The Housing Grants, Construction and Regeneration Act

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

The right to be paid in interim, periodic or stage payments.
The right to suspend (or part suspend) performance for non-payment and to claim costs and expenses incurred and extension of time resulting from the suspension.
The client must issue a payment notice within five days of the date for payment, even if no amount is due. Alternatively, if the contract allows, the contractor may make an application for payment, which is treated as if it is the payment notice.
The client must issue a pay less notice if they intend to pay less than the amount set out in the payment notice, setting out the basis for its calculation.
The notified sum is payable by the final date for payment.
If the client (or specified person) fails to issue a payment notice, the contractor may issue a default payment notice. The final date for payment is extended by the period between when the client should have issued a payment notice and when the contractor issued the default payment notice. If the client does not issue a pay less notice, they must pay the amount in the default payment notice.
Pay when certified clauses are not allowed, and the release of retention cannot be prevented by conditions within another contract.

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.

[edit] Other remedies

For small debts (below £5,000) the Small Claims Court offers a simple and inexpensive route to obtain judgment where a sum remains outstanding beyond the contractual position. An assessment must, of course, be made as to the merits of taking such action, particularly if the client is a source of on-going work but in the absence of best practice being adopted more widely, the problem of late payment will have to be tackled, at least in part, by suppliers standing up for their legal rights more vigorously than in the past.

All suppliers should read contracts carefully and ensure that they are content with payment terms and conditions before signing. For statutory or contractual rights to be capable of being enforced swiftly it is imperative that a contract sets out explicitly the terms and conditions for payment for the services or goods to be supplied. It should also clearly set out what must be done in the event of a dispute over an invoiced amount.

NB: A lien is a right to retain possession of another person’s property pending payment of a debt. For example, a garage might not allow the owner of a car to retrieve it until the work they have done has been paid for. The holder of the property is not usually able to deal with it unless there is a contractual or statutory provision permitting this.

[edit] Prompt payment code

The Prompt Payment Code (PPC) was created by the UK government in 2008 in response to a call from businesses for a change in payment culture. It established a set of principles for businesses when dealing with and paying their suppliers that commit them to paying on time and fairly. The Code is administered by the Institute of Credit Management (ICM) on behalf of the Department for Business Innovation & Skills (BIS).

In April 2019, six major contractors were suspended from the Code for failing to pay suppliers on time, and John Sisk & Son were removed altogether.

For more information see: Prompt payment code.

[edit] Fair Payment Code

The Fair Payment Code is a UK government-backed initiative launched in November 2024 that replaces the Prompt Payment Code to encourage businesses to pay suppliers more promptly and fairly. It uses a tiered system of Gold, Silver, and Bronze awards, which businesses can apply for based on their payment performance. This tiered system aims to drive best practices and help smaller firms, who are particularly vulnerable to late payments, identify which businesses pay on time. See Fair Payment Code

[edit] Construction supply chain payment charter

The government launched a new Construction Supply Chain Payment Charter in April 2014. This builds upon payment provisions set out in the Housing Grants, Construction & Regeneration Act 1996 (as amended); the Late Payment of Commercial Debts Regulations 2013; the Fair Payment Charter; Cabinet Office Procurement Information Note 2/2010; and the Prompt Payment Code.

The Charter sets out 11 fair payment commitments. Clients, contractors and sub-contractors in the public and private sector can sign up to the Charter. However, when it was launched, just nine companies had committed to adopting it.

In May 2014, in Building a responsible payment culture, Government response, the government cited this ‘success’ with the construction industry, but said it would bring forward legislation for further reforms, including:

Requirements for public authorities to accept e-invoices.
Requirements for public authorities to run timely and efficient procurements.
Greater powers for Ministers to investigate complaints raised by the Cabinet Office’s ‘Mystery Shopper’ scheme.

It also suggested that there was strong support for increasing transparency on payment practices and as a result, it would work with business to develop a robust reporting framework enforced by a legislative underpinning.

[edit] Small Business, Enterprise and Employment Bill

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

Payment practices and policies relating to relevant “Qualifying Contracts” (a broad definition) and;
The company’s performance by reference to those practices and policies.
The standard payment terms of the company and any which are not standard;
Comment on any disputes relating to the payment of invoices;
A statement as to whether the Qualifying Company’s payment practices and policies provide for the deduction of a sum from a Qualifying Contract.

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

[edit] Late payment initiatives

In November 2018, Minister for Implementation Oliver Dowden announces that failure of companies to demonstrate prompt payment to suppliers could result in them being prevented from winning government contracts. A new prompt payment initiative will come into force on 1 September 2019. Ref https://www.gov.uk/government/news/crack-down-on-suppliers-who-dont-pay-on-time

On 23 May 2019, speaking at the Royal Institution of Chartered Surveyors’ annual construction conference, Oliver Dowden reiterated: “Small businesses are the back-bone of the UK’s economy, so it’s vital that we support them – and one of the key elements of that is making sure they are paid on time… That is why I have warned big businesses they must do their bit and I’ve been clear that they could lose out on valuable government contracts if they don’t.”

The initial proposal was to require that 95% of invoices where paid within 60 days. However, when the new rules came into force on 1 September 2019, they had been watered down, requiring that main contractors demonstrate that at least 75% of invoices were paid within 60 days in at least one of the two previous six month reporting periods, and to demonstrate that an action plan is in place to meet the 95% standard in future.

In January 2020, a private members bill was launched in the House of Lords providing for a statutory limit of 30 days for paying bills.

The 2022 post-Brexit Procurement Bill includes provisions to establish 30-day payment within the public sector by:

ensuring 30-day payment will be a mandatory implied term into tier 1, 2 and 3 construction contracts – overriding any other payment terms within relevant contracts (widely regarded as a milestone achievement); and
requiring public sector procurers to report on their payment performance in the same way as the private sector.

Should the new provisions be enacted as currently proposed, non-compliance would then be dealt with by the Public Procurement Review Service, supported by the Small Business Commissioner.