Construction Act review fails to go far enough on payment practice reform

The Government’s review of the Construction Act proposes new measures to reform bad payment practices. The consultation paper, Improving payment practices in the construction industry, published by the DTI, also puts forward proposals to tighten up the adjudication process, clarify when a debt occurs and would see contractors reimbursed for costs incurred when projects are delayed.

Rudi Klein, chief executive of the SEC Group, said that the review should have gone further. “I welcome the fact that payment issues have been aired,” he said. “But we are unhappy about the lack of protection of supply chains from insolvency upstream. The review also stops short of banning pay-when-paid clauses which are extremely detrimental to the ability of a contractor to manage cash flow and complete work when others are in dispute concerning payment.”

In contrast, in the subbies’ favour is the recommendation that given the growth of off-site fabrication and in order to improve cash flow down the supply chain, stage payments should be made for materials and work on their preparation off-site.

Other proposals include giving an adjudicator the power to rule on whether or not there is a dispute and to overturn interim payment decisions.

“We are pleased with the abolition of cross contract set-off. This is a step in the right direction,” said Klein. We must now galvanise our sector to respond to the paper, to ensure that we push forward the radical changes in our industry.”

The consultation paper follows a review of the Construction Act chaired by Sir Michael Latham. It remains to be seen whether the industry will be able to reach a consensus given the range of views across the sector, particularly on payment.

Parties interested in adding to the consultative process have until 21 June to do so. For more information go to www.dti.gov.uk.