Research, such as that conducted last year by the CICV, shows that problems with late payment, including late payment of retention monies, continue to be a very significant issue in the construction sector.
The Position Before the New Rules
Regulations made by the UK Government under the Small Business, Enterprise and Employment Act 2015 introduced a duty on qualifying (large) companies and LLPs to report, on a half-yearly basis, on their payment practices and policies for financial years on or after 6 April 2017.
The information to be provided under the Reporting of Payment Practices and Performance Regulations 2017 must be published through a web-based service available to the public. It is a criminal offence by the business, and every director of the company or designated member of an LLP, if the business fails to publish a report containing the necessary information within the specified filing period. Further, anyone who knowingly or recklessly publishes, or causes the publication of a report which is misleading, false or deceptive, commits a criminal offence if they knew or were reckless about it being false or misleading at the time it was made.
The UK Government estimated that, as of May 2023, more than 70,000 reports had been submitted by about 10,000 businesses. It was hoped that these requirements to report might help improve payment practices, including those in the construction sector.
Greater Transparency on Payment Practices
The UK Government published a Statutory Review of the extent to which the Regulations had met their objectives. The Review concluded that the Regulations had brought greater transparency on the payment practices of businesses and the UK Government consulted on extending the time period for which the Regulations would apply and whether there should be any amendments to the information to be disclosed by the relevant businesses.
As a result, from 1 March 2025, large companies working in the construction sector will now have to report specifically on their practices in relation to retention sums withheld from contractors and suppliers as a result of The Reporting on Payment Practices and Performance (Amendment) No. 2 Regulations 2024. Those regulations apply to relevant companies or limited liability partnerships and to construction contracts, i.e. those that relate to the carrying out of construction operations in the UK as defined in the Housing Grants, Construction and Regeneration Act 1996 (as amended).
The changes to the Regulations concerning retentions are designed to require qualifying businesses to include information on retention practices and payment including:
- the policy of the reporting business in relation to retentions and any standard terms that apply to these as well as their approach to releasing retentions;
- the average number of days taken to make retention payments made within the reporting period;
- the percentage of retention payments due within the reporting period which were not paid within the agreed payment period; and
- the average value of retention held per construction contract (the percentage of the contract value).
Comment
The new information to be supplied by reporting businesses should help potential sub-contractors and suppliers in deciding whether to contract with the reporting businesses. It remains to be seen, however, whether the new requirement for large businesses in the construction sector to disclose their policies in relation to the imposition of retention and their practices in subsequent payment of retention monies, will affect the number of contracts in which retention is applied and improve the timeous payment of retention monies where retention has been applied.
