Commercial Payments Bill: proposed legislation clears House of Lords

Commercial Payments Bill moves to Commons with payment limits and retentions ban intact

The Commercial Payments Bill has completed its passage through the House of Lords and moved to the House of Commons, taking proposals for maximum payment terms and a ban on cash retentions in construction a stage closer to becoming law.

Peers passed the Bill at Third Reading on 20 October. It received its First Reading in the Commons on 21 October, a formal introduction without debate. A date for Second Reading, when MPs will debate its main principles, has yet to be announced.

The brief final Lords proceedings brought no substantive changes to the construction proposals agreed at Report stage in September.

What would change for construction?

The Bill retains proposed maximum payment terms of 60 days for private sector purchasers and 30 days for public authorities, alongside a ban on cash retentions in construction contracts.

It would also strengthen the Small Business Commissioner’s powers to investigate poor payment practices and take enforcement action, including imposing financial penalties.

The government is working with industry and surety providers on alternatives to retentions, including performance, retention and warranty bonds. Legitimate staged and interim payments would remain permitted, but arrangements could not be used to recreate a retention by withholding money as security for performance.

Devolved consent remains outstanding

At Third Reading, business minister Lord Leong said the government was still seeking legislative consent from Scotland, Wales and Northern Ireland.

He said he was confident all three devolved legislatures would grant consent, with further progress expected during the Bill’s Commons stages. Provisions touching on devolved areas would be subject to a consent mechanism respecting the devolved settlements.

When could the measures take effect?

The move to the Commons does not change businesses’ payment obligations immediately.

In a written parliamentary answer on 19 October⁽¹⁾, the government said most measures were expected to take effect in late 2027 or early 2028, subject to parliamentary approval, the timing of Royal Assent and the necessary secondary legislation.

The construction retentions provisions would be brought into force separately, allowing time for industry preparation and the development of alternative arrangements. A commencement date for the ban has not been confirmed.

MPs will now scrutinise the Bill and can propose further changes before it completes its parliamentary passage.

To keep up to date with the latest industry news and insights from BCIS, register for our newsletter here.

^{(1) UK Parliament – Question for Department for Business, Innovation, Science and Trade – here}