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Published: 22/09/2026
The Commercial Payments Bill cleared Report stage in the House of Lords on 15 September, its last significant Lords hurdle before Third Reading on 20 October. Its two central construction proposals, maximum payment terms and a ban on cash retentions, remain intact. But Report stage also provided more detail on how the government expects the new regime to work if the Bill becomes law.
The headline position hasn’t moved
Private sector purchasers would still have to pay within 60 days, public authorities within 30 days, and cash retentions in construction contracts are still set to be banned. Several amendments sought to alter or create exceptions to these provisions at Report stage, but none succeeded.
But there’s now a route to shorter payment terms later
The government added a power allowing the Secretary of State to shorten the existing payment limits by regulation. It has said it will not use that power for at least five years after the relevant provisions come into force, but must consult within that five-year period on whether the limits should subsequently be reduced. Although nothing changes immediately, this means there is now a statutory route towards 45-day or even 30-day terms for private sector contracts further down the line.
The retentions ban has more practical detail attached to it
Escrow and other third-party payment arrangements would still be allowed where they are simply being used to make a payment. They could not be used to hold money back as security for a contractor’s performance, effectively recreating a retention under another name. Legitimate staged or interim payments would also be unaffected.
The government is now actively working on what replaces retentions
Small Business Minister Lord Leong named performance bonds, retention bonds and warranty bonds among the alternatives being considered. These provide forms of financial security without relying on cash being withheld from payments. The government is working with surety providers to ensure alternatives are available before the ban takes effect, while the Construction Leadership Council has appointed an industry lead for this work, with wider engagement across clients, providers and smaller firms increasing from September.
A proposed exemption for resident-managed blocks was rejected
Some peers wanted resident management and right-to-manage companies, through which leaseholders can manage their buildings, excluded from the retentions ban so they could continue using retentions as security over the completion of work and remediation of defects. The government resisted this, pointing instead to alternative forms of financial security and quality management, as well as requirements applying to higher-risk buildings under the Building Safety Act 2022.
The Small Business Commissioner is being expanded ahead of its proposed new enforcement powers
Its budget has already risen by 30% this financial year and six new staff are being recruited, taking the team to 20. The government is also considering a 28-day limit for resolving payment disputes, in line with the existing construction adjudication framework, although that detail still has to go through consultation and secondary legislation.
One loose end is how penalties will be calculated
Amendments agreed at Report stage removed wording that would have limited the turnover used to calculate certain financial penalties to UK turnover. In principle, that leaves open the possibility of a company’s wider turnover being used instead. However, the government has not yet decided which approach the eventual regime will take. That will be determined following consultation and set out in secondary legislation.
Dr David Crosthwaite, chief economist at BCIS said: ‘It’s worth bearing in mind that retentions aren’t what construction professionals have told us cause the biggest problems day to day. Our own polling earlier this year found that only 2% of respondents pointed to retentions as the biggest cause of payment problems, well behind payment disputes (24%), supply chain practices and culture (22%) and long contractual payment periods (21%).
‘While the peers’ discussion at Report stage reinforces the direction of travel on retentions and provides more detail on how the proposed new regime could work in practice, it doesn’t extend the Bill’s reach into payment disputes or wider supply chain culture.
‘Those are more difficult problems to tackle through legislation alone. Maximum payment terms and a ban on retentions could change the framework businesses operate within, but their impact will also depend on how contracts are administered in practice and how payment behaviour changes across the supply chain.’
What’s next?
Third Reading of the Bill in the House of Lords is scheduled for 20 October 2026, after which it is expected to move to the Commons.
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