Large construction companies will be forced to report the proportion of retention sums they withhold from suppliers under legislation introduced this week.
The new reporting requirements, which aim to “encourage improved payment practices”, have been enacted through a statutory instrument laid before Parliament, business secretary Jonathan Reynolds announced in a written statement on Monday (7 October).
The new requirements will cover accounts made for financial years starting from 1 January 2025.
“This measure will help increase transparency around retention policies and performance, and encourage improved payment practices,” Reynolds said.
Large companies will be required to report whether retention clauses are standard on all contracts, their standard retention rates and how they release retentions.
They will also have to disclose what proportion of the money they paid to suppliers they held back as retentions, and how much money is being held back from them in retentions from clients.
Firms that fail to report this information will face sanctions, the government signalled. The Department for Business and Trade (DBT) said it would encourage business to comply before seeking prosecution.
Moves to force firms to report retentions data were first proposed almost a year ago by the previous Conservative administration.
Rob Driscoll, director of legal & business at the Electrical Contractors’ Association, said: “This milestone first step forward by the new government demonstrates a strong commitment to fairness and unlocking growth, as well as delivering on the procrastination of predecessors.”
Setting out the new rule, the DBT wrote: “The open nature of the reporting is intended to encourage businesses to comply and to improve their payment practices, through public pressure and good payment behaviour by responsible companies leading the way, encouraging other businesses to seek to match the best.”
The move follows a government consultation on late payment regulations, in which two-thirds of respondents supported extending their scope to cover retentions.
The government said it had consulted with construction industry stakeholders on the new requirements, including the Construction Leadership Council.
The new legislation seeks to balance the aim of providing useful information to firms’ supply chains and only requiring firms to collect data they can base on their existing systems, the DBT added.
The department did not prepare an impact assessment on the new rules, stating it would “only affect a limited number of businesses” and cost them less than £10m in total.
In his statement, Reynolds also confirmed his department would introduce a new Fair Payment Code and consult on additional measures to tackle late payment, which the government announced last month.
He also said that the government would launch a public consultation within months on additional legislative measures to address late payments and long payment terms.
He added: “This package demonstrates this government’s determination to tackle the scourge of late payments, meeting the commitments laid out in our manifesto and Plan for Small Business.
“These initiatives will ensure more businesses are paid on time – ultimately increasing productivity, improving cashflow and driving growth.”
Driscoll said: “Previous voluntary initiatives have failed because although majority opinion supports reform, opinion was divided on the shape of the solution. This government is not prepared to tolerate procrastination.
“This initial step will build on the strength of the payment reporting requirements – recently amended to report on value as well as volume thereby closing a huge loophole – and bring the spotlight of transparency to the truth of cash retentions.
“We are eager to see the detail of the new Fair Payment Code, specifically how the system will ensure that signatories cannot game the system, languishing in virtue-signalling compliance, for the purposes of PR and pre-qualification, with little or no aspiration to improve.”
Barrister Rudi Klein welcomed the move, but called for the government to go further and impose statutory ringfencing of retentions.
He said: “All this nonsense about a roadmap committing to getting rid of retentions by 2025 is illusory.”
