02 July, 2020
In January, the first reading of The Small Business Commissioner and Late Payments etc Bill 2019-21 (the "Bill") took place in the House of Lords. In what would be a welcomed development for contractors in the construction sector, the Bill proposes wide-ranging reforms to current statutory controls on late payment of invoices, when interest can be charged and non-compliance by the paying party.
Currently, the Late Payment of Commercial Debts (Interest) Act 1988 (the "Late Payment Act") sets out the statutory basis on which interest can be charged on overdue invoices or payment notices. Unless varied under by the parties under contract (for example, standard form JCT, NEC and Appointment Deeds containing detailed provisions dealing with the service and payment of invoices), the Late Payment Act sets out that interest can be charged at a rate of 8% from the day after the "relevant day". Importantly, in a business-to-business ("B2B") context, the relevant day is commonly the last day of the 60 day period following either performance of the contractual obligations, or on notifying the purchaser of the amount that is due.
The Bill proposes that a 30-day statutory period be imposed for B2B contracts, reflecting a drive to ensure that purchasing parties fulfil their payment obligations promptly on the supplier's completion of their contracted services. This is also reflected with the following further amendments to the Late Payment Act:
(a) Inclusion of a statutory time limit for resolving payment disputes, under which invoices must be disputed within 21 days of submission and resolved within 30 days of that dispute being raised, with recourse to the Small Business Commissioner if this is not complied with;
(b) "Small claims" that would otherwise be adjudicated under the Housing Grants, Construction and Regeneration Act 1996 can be referred to the Small Business Commissioner;
(c) An increase in interest payments to 50% where payment has not been made within 60 days of the agreed payment day or (if there is none) the last day of the relevant 30-day period; and
(d) Inclusion of an obligation on purchasers to pay compensation and statutory interest on paying an invoice later, whether or not the supplier has requested such payment.
Lastly, the Bill includes several wide-ranging amendments to the Enterprise Act 2016 which aims to punish public authorities and large businesses for persistent failures to pay invoices (including, where applicable, interest), with fines for the latter totalling up to £10,000,000 or 4% of annual worldwide turnover. The Bill also prohibits purchasers demanding discounts for early payments, using payment clauses that preclude suppliers from ceasing or putting on hold works for non-payment, in addition to preventing purchasers from imposing charges on suppliers for submitting invoices, becoming a supplier (otherwise known as "on-boarding") or maintaining approved supplier status (otherwise known as "pay-to-stay").
It is yet to be announced when the Bill will proceed to the second reading stage in the House of Lords; therefore, as with previous attempts at legislative reform in this area, it is possible that the Bill will never be placed before the House of Commons. However, with issues concerning late payment and business liquidity becoming more prominent during recent months, it is vital for suppliers to ensure that their construction contracts contain adequate mechanisms for the payment of invoices (including interest), in the event of purchaser default.
For more information contact John Pickervance in our Construction & Infrastructure department via email or phone on 0333 207 1134. Alternatively send any question through to Forbes Solicitors via our online Contact Form.