The Reporting on Payment Practices and Performance (Amendment) (No. 2) Regulations 2024

[edit] Announcement

In October the government announced plans to strengthen requirements around late payments and retentions. In a written ministerial statement published on Tuesday 8 October, the Department of Business and Trade (DBT) detailed reporting requirements for large companies, which will be mandated through secondary legislation, coming into force in March 2025.

The Reporting on Payment Practices and Performance (Amendment) (No. 2) Regulations 2024 amend existing regulations, which impose a requirement on large companies and limited liability partnerships (LLPs) to publish certain information twice per financial year about their practices, policies and performance in relation to paying suppliers.

[edit] Draft Legislation

The draft legislative text states "The Secretary of State makes these Regulations in exercise of the powers conferred by sections 3(1), (2), (4), (5) and (7) and 161(2) of the Small Business, Enterprise and Employment Act 2015(1) and sections 15 and 17(2)(a) and (3) of the Limited Liability Partnerships Act 2000(2). In accordance with section 3(8) of the Small Business, Enterprise and Employment Act 2015, the Secretary of State has consulted such persons as the Secretary of State considers appropriate. In accordance with sections 3(9) and 161(4) of the Small Business, Enterprise and Employment Act 2015 and section 17(4) of the Limited Liability Partnerships Act 2000, a draft of these Regulations has been laid before Parliament and approved by a resolution of each House of Parliament."

[edit] Context

In Novermber of 2023 an ISG spokesperson responded to speculation saying: “Some six to eight weeks ago, we were alerted to unsubstantiated, wholly inaccurate and false claims that were circulating about our business. As you would expect, we actively reached out to our stakeholders with facts and truth.” Some 10 months later the firm went from dismissing sepculation to the brink of administration, as was later reported by Buildnig Design in 'Timeline: How ISG went from ‘wholly inaccurate’ claims about its financial health to ‘ISG has filed for administration’

By 8 October, 2024 the Construction Enquirer reported that 'In letters to trade creditors, administrator EY confirmed that no further work would be carried out during the administration on existing contracts, including projects for Construction, Fit Out and Engineering services businesses. It said: “The companies are being wound down under our supervision while we conduct an investigation of their financial affairs....At present, it is not anticipated that there will be any funds available for a distribution to creditors.”

During this time ECA, CIAT and others published support routes for employees, clients and contractors in relation to the collapose of the construction industry giant. The CLC also announced its endorsement of the Build UK Document to Support Organisations in the ISG Supply Chain. Its said "Following the collapse of ISG last month, Build UK, with the support of Wedlake Bell LLP, has published a series of Frequently Asked Questions (FAQs) to support organisations in the supply chainthat may be affected. See article ISG administration, October support update.

[edit] Requirements

Qualifying companies and LLPs will be required to publish certain information on their practices, policies and performance with respect to retention clauses in any qualifying construction contracts with suppliers. This measure will help increase transparency around retention policies and performance, and encourage improved payment practices.

During the September before, following months of concerns about its finances and a stalled sale of the group, eight ISG businesses entered voluntary administration, by October it was clear many employees, clients, and contractors would face payment issues. see ISG administration, October support update.

Under the Reporting on Payment Practices and Performance (Amendment) (No. 2) Regulations 2024 large companies will be required to report payment performance in annual reviews, most likely on a similar basis to gender pay gap reporting. On a separate but related announcement the government said it will replace the current Prompt Payment Code with a new voluntary Fair Payment Code, to be overseen by the Small Business Commissioner. See article Fair Payment Code.

In addition, government is implementing specific requirements for reporting of retentions. Qualifying companies and LLPs will be required to publish information on the practices, policies and performance with respect to retention clauses in construction contracts. The ambition of these requirements is to improve transparency, and encourage business to improve their practices (again, akin to gender pay gap reporting). Companies will be required to specify:

• whether they use retention clauses across all contracts, none or only some (and if the latter, the circumstances in which retention clauses will be used);
• the standard a contract value under which no retention clause is included (if any);
• the standard rate of retention applied;
• the process for releasing retentions (if any);
• the % ratio of the amount of retention withheld from the business as against which the business holds on suppliers;
• the % ratio of the amount of retention the business withheld from gross payments made to suppliers as against the gross amount paid to suppliers.

[edit] Reactions

After the announcement the Chartered Institute of Architectural Technologists said

"While these changes are positive, CIAT does not believe they will be enough to drive a meaningful change in business practices and would not prevent the sort of negative consequences seen following the collapse of Carillion and ISG. However, DBT also plans to consult on further measures to address late payment and long payment terms. CIAT will be using that opportunity to press for a more substantial reform of payment practices to better protect small businesses in the built environment sector."

[edit] Related articles on Designing Buildings

• Cash flow.
• Causes of construction disputes.
• Collaborative practices.
• Construction client's charter.
• Construction supply chain payment charter.
• Fair payment code.
• Fair payment practices.
• Housing Grants, Construction and Regeneration Act.
• Insolvency.
• Net zero commitment will be required for major government contracts.
• Procurement policy note PPN.
• Prompt Payment Code boosted to help SMEs.
• Prompt payment code: the story behind the headlines.
• Progress on poor payment practices.
• Project bank accounts.
• Remedies for late payment.
• Scheme for construction contracts.
• The Late Payment of Commercial Debts Regulations 2013.
• The Reporting on Payment Practices and Performance (Amendment) (No. 2) Regulations 2024.