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Government proposals to clamp down on poor payment practices

Construction / 11 February 2020

Last Summer, we reported on new measures announced the Department for Business, Energy and Industrial Strategy to clamp down on poor payment practices throughout the UK: (Read our article) Those measures have now been formalised and introduced for approval by the House of Lords in the Small Business Commissioner and Late Payments etc Bill 2019-20.

The bill focuses on late payment and proposes to amend the Late Payment of Commercial Debts (Interest) Act 1998 including:

– Reducing the period when statutory interest starts to run from 60 to 30 days;
– Changing the definition of “substantial remedy”; and
– Providing a statutory mechanism by which parties may resolve payment disputes, failing which, the dispute can be referred to the Small Business Commissioner (“SBC”).

There are also proposed amendments to the Enterprise Act 2016 dealing with the role of the SBC, banning several unfair payment practices like subcontractors 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.

The bill also requires the use of project bank accounts for public sector works over £500,000 and allows small construction firms to refer payment disputes to the SBC rather than go through adjudication.

Only last week, KPMG announced the administration of Clugston Group Limited, a contractor based in Scunthorpe. The administration is reported to be because of the collapse of a key subcontractor which caused “significant ransom positions from the supply chain”. It is hoped that the bill will allow small businesses the capacity to act, without the threat of poor payment practices, such as late payment and similar ransom situations leading to associated cash flow issues. The proposed measures are said to be ‘operable, impact and measurable’.

A date for the second reading has not yet been given, but we will update you in greater detail if the bill passes that stage.

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