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Bill proposes to tackle payment abuse

The industry has welcomed last week’s Government announcement to amend construction contracts legislation in line with sector demands, but said it is ready to lobby hard to ensure the amendments do not fall off the political agenda.

The comments were made by the Heating and Ventilating Contractors’ Association (HVCA) and the Specialist Engineering Contractors’ (SEC) Group after it emerged that the reforms were the last two items in the Community, Empowerment, Housing and Economic Regeneration Bill.

Under the Bill, the Government proposes to introduce legislation to improve the operation of construction contracts, improve cash flow through construction supply chains and encourage disputing parties to resolve conflicts via adjudication as opposed to through the courts.

However, with 18 separate bills announced in the draft legislative programme 2008/09, there is concern that the Government will have neither the time nor the inclination to ensure that the amendments make it into the next parliamentary session.

Rod Pettigrew, HVCA head of legal and commercial, said: “The fact that we have finally got these amendments onto the Government’s legislative programme after almost eight years of hard lobbying and detailed work is an absolute delight to us.

“It does not worry us that we have a Bill within a Bill since the amendments only amount to about 20 sections and we recognise that to take a separate Bill through the parliamentary process with that many sections is not really necessary.

“The question arises about the detail,” Mr Pettigrew continued. “What is the Government proposing to ensure that cashflow to SMEs [small and medium-sized enterprises] is improved? We’ve not seen the exact wording but we will be examining these when they are published and as they pass through both houses.”

Mr Pettigrew dismissed the suggestion that since the amendments are not part of key legislation, such as the Banking Reform Bill and the Business Rate Supplements Bill, there was no real commitment on the part of the Government to ensure that the proposed amendments reached the statute book.

“The fact that the Government has published its proposals to improve the Act suggests that it has a clear intent to legislate on these issues before the end of the next parliamentary session,” he insisted.

“The Government said it is focused on steering the economy through the global downturn. If you take the economic argument, I would say that in terms of improving cashflow to SMEs through addressing things like poor practice, especially with the chill winds of recession imminent, then this is exactly the right time to pass the legislation to ensure that SMEs are protected from the practices that can ruin their businesses.”

John Nelson, chairman of the SEC Group, agreed. “SMEs make up 85 per cent of the construction industry, and the impact of late payment on these businesses and the wider economy as a whole is huge,” he said.

“The current doom and gloom that is affecting the UK and global economy may actually help us take these amendments through if it can be demonstrated that there is a payment problem. The Government is far more likely to be sympathetic to the payment problems suffered by SMEs in a downturn than it would be in a booming economy.”

Mr Nelson added: “Yes, the parliamentary timetable is precious but one of the things that we’ve learned is that intense lobbying can reap benefits. We intend to lobby the Government hard to keep this issue at the forefront of the political agenda. The announcement is good news; it is a step forward but we await further developments.”

The Construction Confederation (CC), in the mean time, said it intends to fight for main contractors’ interests when the Draft Bill clauses are published for pre-legislative scrutiny.

It argues that proposals to amend the payment provisions of the Construction Act will be costly, are unnecessary and will struggle to receive widespread support from the industry.

Stephen Ratcliffe, CC chief executive, said: 'While the Confederation has consistently been supportive of improvements to the adjudication provisions of the Act we have serious reservations about proposals to amend the payment provisions.

'We will need to look very closely at the detail but clearly if the Government is serious in its claim that it wants to reduce red tape and burdens on business, then any further regulation has to be fully justified. We have yet to see the case for this.

'We believe that additional legislation on payment terms will bring increased red tape and increased costs. That is why we have suggested the sensible route of improving guidance on existing legislation which delivers what the industry requires.

Guidance, Mr Ratcliffe said, could be developed to identify best practice. 'The OGC’s Fair Payment Charter is a good example of how the industry is addressing this issue as are the 2012 Olympic Commitments.

'The current Construction Act did have widespread industry support and it would seem to be a retrograde step to amend it with new provisions that do not enjoy an industry consensus.

He concluded: 'One important issue often overlooked is that those who choose not to pay will ignore legislation in whatever form it is presented – further regulation will serve only as an administrative burden to contractors who comply.'

Amendments to the construction contracts legislation were announced in Gordon Brown’s draft Queen’s Speech. The legislation is contained within Part II of the Housing Grants, Construction and Regeneration Act 2006.