Late payments retentions Ellis Fox Blog

Will the hard line on late payments turn construction around?

Ever since the collapse of Carillion in early 2018, retentions and late payments in the construction industry have been a topic of heated debate. Both have a domino effect on the supply chain, with subcontractors and smaller contractors being the hardest hit.

2019 hasn’t been a positive one for construction in terms of output, yet amidst the chaos there has been something to smile about. Government has taken a hard line on late payments, announcing that they would be penalising late payment offenders in their eligibility for new contracts. It’s been welcomed by most in the industry, but has it made an impact on late payment practices?

Hitting where it hurts most

In July, a list of late payment offenders was published, naming and shaming those who took more than 45 days to settle accounts with suppliers and subcontractors. In the same month, 18 companies were also suspended from the Prompt Payment Code. But it seems the government’s plan to not award contracts to late payment offenders may be the most effective strategy yet.

Main contractors are notorious to turning a blind eye to mismanaged operations, cost overruns and late payments and choose instead to promote the value of new contracts won. As if the one cancels out the other. Meanwhile suppliers and subcontractors are kept waiting and battling to manage their cash flows while the big guys toast to landing another deal. But that strategy won’t work if there are no new contracts to boast about.

Review of retentions

Similarly retentions are under review. Some in the construction industry are calling for them to be scrapped altogether. Others maintain that a better way to manage retentions is to place retention monies in a bond or trust and to have more effective contracts in place that protect the interests of subcontractors. That way if the main contractor goes into liquidation, at least the supply chain doesn’t lose out completely.

The Aldous Bill proposes amending key elements of the retentions bill. But despite strong support, the second reading keeps getting pushed back, and it is yet to be passed. Even the proposer, MP Peter Aldous has his doubts it will ever pass.

It seems that while everyone wants reform on retentions and late payments, actually getting change implemented is an uphill battle. It’s going to take a lot more than just talk.