📜 Delegated Legislation Committee

General Committees

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The Committee discussed new regulations aimed at improving transparency in construction contract payment practices, particularly focusing on retention money. Gareth Thomas, the Parliamentary Under-Secretary of State for Business and Trade, emphasized the need for these amendments to help small businesses in the supply chain. Concerns were raised about enforcement and the effectiveness of the new measures, with the government promising to monitor and possibly adjust the regulations if necessary. The session highlighted ongoing efforts to tackle late payments and support small businesses in the construction sector.

Summary

  • Purpose of the Session: The Committee discussed the Draft Reporting on Payment Practices and Performance (Amendment) (No. 2) Regulations 2024, aimed at amending existing regulations from 2017.

  • Focus of the Regulations: The new regulations target issues with payment practices in the construction industry, particularly the use of retention clauses that often disadvantage small businesses.

  • Retention Clauses Explained: These clauses allow larger companies to withhold a percentage of payment (3% to 5%) as security against defective work or supplier insolvency, which can lead to unfair treatment of smaller suppliers.

  • New Reporting Requirements: Companies will now need to report on whether their payment practices include retention clauses, the specifics of these clauses, and metrics such as the percentage of retentions withheld.

  • Government’s Stance: The current Government acknowledged the efforts of the previous Government and supports the regulations to enhance transparency and fairness in payment practices.

  • Implementation and Enforcement: The regulations have been in the works since 2017, but there have been no prosecutions for non-compliance yet. The government is attempting to improve compliance by reaching out to over 500 non-compliant firms.

  • Business Costs and Compliance: The new regulations are expected to add costs to businesses, estimated at £10 million annually. Questions were raised about government plans to mitigate these costs and continue enforcing timely payments for government contracts.

  • Incentives and Review: The regulations are designed to incentivize better payment practices. There was discussion about monitoring their effectiveness and the possibility of future reviews if needed.

  • Broader Initiatives on Late Payments: The government is preparing to consult on additional legislative measures to address late payment issues across various sectors, acknowledging the severe impact on small businesses.

  • Outcome: The Committee agreed to the new regulations, supporting increased transparency and accountability in how larger companies handle payments to smaller suppliers in the construction industry.

Divisiveness

The parliamentary session displayed a low level of disagreement. The discussion was primarily focused on the details and effectiveness of the Draft Reporting on Payment Practices and Performance (Amendment) (No. 2) Regulations 2024, with supportive remarks from all members who spoke. Dame Harriett Baldwin from the Conservative Party explicitly expressed support for the measures, while asking for further clarifications on aspects like enforcement and cost implications. Daisy Cooper from the Liberal Democrats also endorsed the regulations, emphasizing their potential to address power imbalances in supply chains and inquiring about monitoring mechanisms and future reviews. Both members’ questions were aimed at enhancing the legislation rather than challenging its core objectives. The responses from Gareth Thomas, the Parliamentary Under-Secretary of State, were thorough and addressed the concerns raised, indicating an overall consensus on the importance and direction of the proposed regulations. The session ended with unanimous agreement to the proposal, reflecting minimal disagreement.