This included a number of packages, including a proposal to ban the practice of deducting and withholding retention payments under construction contracts.
The consultation was concerned with small to medium sized businesses and the problems they encounter, as a result of late payments.
Other proposed measures include giving the Small Business Commissioner (SBC) powers, including the power to settle payment disputes outside of the court process, board level scrutiny of payment practices, maximum payment terms, deadlines for disputing invoices and mandatory interest on late payments (statutory right to interest at 8% above the Bank of England base rate).
The consultation outcome publication stated an intention to legislate to prohibit the practice of withholding retention payments, but ‘given the ambition of the policy, we will consult further with interested parties on the impact…’.
The proposed ban represents a potential significant shift in construction contract practices, because retentions are embedded in the UK construction ecosystem.
There will be implications for contract drafting, cashflow planning and sourcing alternative surety products in place of retained sums.
A retention is where the employer (under the main contract) or a contractor (under a subcontract) keeps a percentage of the value of the work carried out until completion or making good of defects (rectification), with payment of a retention, known as the ‘release’ of retention.
Most standard JCT (Joint Contracts Tribunal) forms of contracts contain extensive retention provisions, whereas NEC contracts (New Engineering Contracts) allow the parties to agree to use a secondary option clause, making retention in the NEC optional, rather than prescribed. There is also the option for a holding company guarantee and a performance bond.
The Small Business Protections (Late Payments) Bill was introduced to Parliament this May.
If you wish to discuss this further, please do not hesitate to contact David Brown by email: dcb@cooperburnett.com or tel: 01892 515022
This blog is not intended as legal advice that can be relied upon and CooperBurnett LLP does not accept any responsibility for the accuracy of its contents.
Originally published in the Tunbridge Wells Business Magazine: www.twbusinessmagazine.com
