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Landmark payment reform bill set for House of Lords

HVAC industry has welcomed attempts by Lord Mendelsohn to pursue reforms such as introducing a 30-day mandatory payment timeline as a Private Members’ Bill

A mandatory 30-day limit for payments to be discharged on construction industry related projects is among several reforms in proposed legislation put before the House of Lords today.

Labour peer Lord Mendelsohn will be using the Private Members’ Bill mechanism to push government to rethink a range of issues dictating payment practice, as well as how potential penalties for bad behaviour are enforced in the HVAC and construction sector. Industry bodies representing the building services industry hope that efforts to seek regulatory change through the Lords will address a lack of legislative action on pay practices during the previous parliament. This is a major issue for industry on the back of a number of high-profile insolvencies in the construction industry.

Introduction of the Private Member’s Bill, which is not guaranteed to be passed into law, has arrived two years since construction giant Carillion announced it was entering liquidation. The announcement led to significant financial pressures for companies, particularly SMEs that were owed money for work performed that has not been received.

Provisions in the proposed Small Business Commissioner and Late Payments Bill to try and address industry concerns include ensuring all firms are required to discharge payments within 30 days. It would also seek to provide fresh powers for the UK Small Business Commissioner that would expand his remit to the construction sector. The bill would also impose penalties on companies that falsify performance data or are consistently responsible for late payments.

An amendment to existing public contract regulations to require project bank accounts are used nationally for all public sector work valued at over £0.5m is backed in the bill.

Another key provision would be to outlaw practices such as requiring sub-contractors to pay fees to a main contractor to ensure inclusion on a preferred supplier list.

Rudi Klein, chief executive of the Specialist Engineering Contractors (SEC) Group, said the introduction of the bill would build on attempts to push similar legislation on stricter payment practices in the House of Commons during previous parliaments.

He added that the overall success of switching campaigning efforts from the Commons to the Lords would now depend on the time allocated to Private Members’ Bills in the house.

Mr Klein said, “There is no guarantee this this will become law, often these bills don’t.”

However, the SEC Group said that it was important to continue to put pressure on government to encourage it take over and introduce the proposals into future policy.

Mr Klein added that the timing of the Private Members’ Bill was significant on the second anniversary of Carillion’s collapse. This was particularly the case as nothing had been done to address the issues of upstream insolvency and poor payment raised in the wake up of construction giant’s collapse, he added.

Mr Klein said, “We are actually still awaiting the final liabilities owed by the company to sub-contractors ahead of the insolvency.

The SEC Group warned that it remained significantly concerned over the rate of insolvencies across the construction sector, which it anticipated would have increased during 2019 over the previous year - once final data was available.

Mr Klein said that Lord Mendelsohn has previously played an active role on debates in the Lords around payment reform and practice.

He said, “I wish to place on record my thanks to Lord Mendelsohn and also the thanks of SMEs in the UK’s construction industry which have had to bear the impact of payment abuse and losses from major insolvencies in the industry.”

Mr Klein added, “The government’s manifesto for the recent election made clear that it would ‘clamp down on late payment’ but, since Carillion’s collapse, all we have had are numerous consultation documents.”

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