Construction firms will be forced to report retention payments as part of government reforms to reduce early 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 press ahead with proposals to require major construction firms to disclose details of retentions
Retention payments (typically worth up to 5% of a contract value) are an established practice in the construction industry to provide security against defective work or the insolvency of supply chain companies.
However, late payments are rife, causing cash flow problems throughout the industry. Withholding taxes are a significant risk for smaller suppliers, especially since there is no requirement to limit withholdings to prevent them from being used as working capital.
The government has not said what retention data contractors will have to report, but in a consultation published earlier this year it asked for views on whether contractors should share data about how much retention money they have.
He also asked whether companies should be required to report on their standard retention payment terms. These terms could include the percentage of retention value retained, payment deduction and release milestones, minimum contract value entered into, and contract type.
The new measures will only apply to large companies that must report their payment data under the Payment Practices and Performance Disclosure Regulations 2017.
The DBT has also pledged to “advance legislation to expand payment performance reporting obligations”, with new metrics that will include “a value metric, so businesses and commentators can see the value of invoices, including invoices paid late, and a disputed invoices metric.”.
comes later Construction news previously reported that there were large gaps in the data published by companies under performance rules and pay practices.
The latest measures will be included in the government’s upcoming cashflow and prompt payment review, which is designed to help small businesses get paid on time.
The review will also see the Small Business Commissioner’s powers strengthened and better advice for businesses on negotiating payment terms.
Secretary of State for Business and Trade Kemi Badenoch said late payments were “a massive barrier to growth” for small and medium-sized businesses (SMEs).
“The measures we are announcing will go a long way towards ensuring SMEs receive their payments on time, helping businesses to grow and prosper,” he said.
“Metrics on withholding abuse enable more informed decisions”
Rob Driscoll, Legal and Commercial Director, Electrical Contractors Associationhe said CN: “We know the pay reporting records have been a game changer, lifting the lid on the truth behind the pay behavior of big companies.
“We also know that unless they are updated, they will not continue to be a credible source of data. In volatile trading conditions, the market experience has proven to be very different from the picture the data paints.
“It’s great that the government is listening and taking action, not only to ensure that the value of payments made is measured in the same way as the volume of payments, but that the cap is now being lifted on the extent and scope of ‘use of cash retentions.
“Transparent metrics on hold usage and abuse (amount, milestones, unpaid) allow for more informed business decisions about who to work with. I have no doubt that the digital payment platforms that currently facilitate the generation of ‘reports, will easily change to facilitate additional reporting requirements and develop required functionality.
