Construction firms will be forced to report on retention payments as part of government reforms to drive down payment waiting times.
Following a consultation aimed at tackling the “worst kind of poor payment practices”, the Department for Business and Trade (DBT) said it had decided to go ahead with proposals to require large construction companies to divulge retentions data.
Retention payments – typically worth up to 5 per cent of a contract’s value – are a long-established practice in the construction sector to provide security against defective work or the insolvency of businesses in the supply chain.
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However, late payments are rife, causing cashflow problems throughout the industry. Withheld retentions are a significant risk for smaller suppliers, particularly as there is no requirement to ring-fence retentions to prevent them being used as working capital.
The government has not said what retentions data contractors will need to report, but in a consultation published earlier this year it asked for views on whether contractors should share data on how much retention money they hold.
It also asked whether firms should be required to report on their standard retention payment terms. Those terms could include the percentage of the retention value held, the payment deduction and release milestones, the minimum contract value held and the type of contract.
The new measures will only apply to large companies that are required to report their payment data under the Reporting on Payment Practices and Performance Regulations 2017.
The DBT has also vowed to “take forward legislation to extend payment performance reporting obligations”, with new metrics set to include “a value metric, so businesses and commentators can see the value of invoices, including invoices paid late, and a disputed invoices metric”.
It comes after Construction News previously reported that there were huge gaps in the data published by companies under the Payment Practices and Performance Regulations.
The latest measures will be included in the government’s forthcoming Prompt Payment and Cash Flow Review, which is designed to help small business get paid on time.
The review will also see a strengthening of the powers of the Small Business Commissioner and improved advice for businesses on negotiating payment terms.
Secretary of state for business and trade Kemi Badenoch said that late payments were “a massive barrier to growth” for small and medium-sized enterprises (SMEs).
“The measures we’re announcing will take a big step towards making sure SMEs get their payments on time, helping firms to grow and prosper,” she said.
‘Metrics on the abuse of retentions allow more informed decisions’
Rob Driscoll, legal and business director at the Electrical Contractors Association, told CN: “We know that the payment reporting regs have been a game-changer, lifting the lid on the truth behind the payment behaviour of large businesses.
“We also know that unless they are upgraded, they will not remain a credible source of data.In volatile trading conditions, the lived experience within the market has proven significantly different from the picture painted by the data.
“It is great the government is listening and acting – not only to ensure value of payments made is measured equally alongside the volume of payments, but now to ensure the lid is lifted on the scope and extent of the use of cash retentions.
“Transparent metrics on the use and abuse of retentions – amount, milestones, unpaid – all allow more informed commercial decisions on who to work with. I’ve no doubt the digital payment platforms that currently facilitate reporting, will easily pivot to facilitate additional reporting requirements and build out the required functionality.”
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