Retentions and late payments reform

Earlier this week, the government announced plans to strengthen requirements around late payments and retentions, which have been brought into focus again following the collapse of ISG.

In a written ministerial statement published on Tuesday 8 October, the Department of Business and Trade (DBT) detailed laid out reporting requirements for large companies, which will be mandated through secondary legislation.

Large companies will be required to report payment performance in annual reviews, most likely on a similar basis to gender pay gap reporting, and government will replace the current Prompt Payment Code with a new voluntary 'Fair Payment Code', to be overseen by the Small Business Commissioner.

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.

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.

If you would like to contribute to CIAT's work in this area, please email [email protected]