Skip to main content

Construction Industry (Payment Practices)

Volume 461: debated on Wednesday 20 June 2007

I have today launched a consultation document on improvements to regulation intended to support better payment practices in the construction industry. Copies are available in the House.

It has taken a long time to assemble these proposals following the publication of the DTI and Welsh Assembly Government's first consultation in March 2005.1 am delighted that we can now issue the second consultation we promised on “Improving payment practices in the construction industry”. I know how important it is for all in the construction industry that we have a system which delivers fair payment practices. The framework set out in Part II of the Housing Grants Construction and Regeneration Act 1996 has delivered improvement over the past nine years and it is important we build on this. I look forward to a healthy and constructive discussion.

The consultation document sets out a number of proposals on how we might seek to introduce greater clarity and transparency into the statutory payment framework to enable construction companies to manage cash flow better; and encourage parties to resolve disputes by adjudication.

Prompt and fair payment practice throughout construction supply chains will help the construction industry to adopt integrated working as the norm.

The proposals:

improve transparency and clarity in the exchange of information relating to payments to enable the better management of cash flow;

encourage the parties to resolve disputes by adjudication, where it is appropriate, rather than by resorting to more costly and time consuming solutions such as litigation; and improve the right to suspend performance under the contract.

They do this by:

On adjudication

improving access to the right to refer disputes for adjudication by:

applying the legislation to oral and partly oral contracts

preventing the use of agreements that interim payment decisions will be conclusive to avoid adjudication of interim payment disputes

ensuring the costs involved in the process are fairly allocated

On payment

preventing unnecessary duplication of payment notices

clarifying the requirement to serve a section 110(2) payment notice

clarifying the content of payment and withholding notices

ensuring the payment framework creates a clear interim entitlement to payment

prohibiting the use of pay when certified clauses

On suspension

improving the statutory right to suspend performance by allowing the suspending party to claim the costs and delay which result.

These proposals are intended to be proportionate amendments to the existing framework to address specific issues that have arisen during the nine years the Construction Act has been in operation. Guidance remains the preferred route to improve the operation of construction contracts and we have only considered further legislative intervention where we believe it is absolutely necessary.

Having emerged from the first consultation on “Improving payment practices in the construction industry” in 2005, these proposals were first outlined in the analysis of the consultation in January 2006. During 2006 a DTI appointed sounding board assisted in the development of the detailed proposals for this second consultation. I am very grateful for the work that the sounding board did.

It was originally intended that these proposals should be introduced using a Legislative Reform Order (LRO) under the Legislative and Regulatory Reform Act 2006. But I have now concluded that it would be more appropriate to introduce these proposals using primary legislation. The consultation covers the primary legislative proposals in detail, as well as the consequential amendments that will need to be made to the Scheme for Construction Contracts (England and Wales) Regulations 1998.

We are now seeking the views of the construction industry and its clients on whether this package of proposals properly and adequately addresses the weaknesses in the existing framework, and how we might evaluate the costs and benefits of the package.

We will be seeking to introduce legislation to implement the proposals emerging from this consultation through primary legislation as soon as a legislative slot is available.

The consultation document is also available at: