Construction contractors pledge payment to suppliers within 30 days by 2018

Out-Law News | 14 Apr 2014 | 2:15 pm | 1 min. read

Major UK construction contractors and the government have pledged to pay all suppliers within 30 days by 2018, under a new 'prompt payment charter' to be published later this month.

According to Building magazine the charter, which was drawn up by the Construction Leadership Council (CLC), will commit clients and main contractors that sign it to pay all suppliers within 60 days immediately. This would then be reduced to 45 days from June 2015, and to 30 days by January 2018.

The charter also contains commitments to not withhold payments, make all payments electronically and to work towards the abolition of 'retentions' by 2025, when the government's Industrial Strategy for Construction is due for completion, according to Building. Retention refers to the practice by main contractors and clients of holding back up to 5% of the contract value to ensure the contractor completes the work or corrects any defects.

The CLC is a group of industry and government representatives set up to implement Construction 2025, the government's industrial strategy for construction. It is chaired by Business Secretary Vince Cable and Sir David Higgins, chair of HS2 Ltd. The strategy sets out 10 joint commitments for government and industry, including an increase in the number of suppliers offering greater trade credit to small businesses and the development of a 'fair payment charter' for construction.

Contractors that sign up to the new charter will be monitored against a set of key performance indicators, to be developed by the Institute of Credit Management (ICM), which also drafted the original charter on behalf of the CLC, according to Building. Although voluntary, its announcement comes shortly before the government's anticipated response to last year's consultation on whether more can be done to change the culture of late payment to small suppliers.