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Published: 19/05/2026
The government has introduced legislation aimed at tackling late payment and reforming construction payment practices, including proposals to ban retention clauses in the sector.
The Small Business Protection Bill, which received its first reading in the House of Lords this week, includes measures to introduce stricter payment terms in commercial contracts, strengthen powers for the Small Business Commissioner and expand protections for firms facing persistent late payment.
The long title of the bill also confirms proposals to ban retention clauses in the construction sector, marking one of the most significant proposed interventions in construction payment practices for years.
According to research referenced by the government, late payments cost the UK economy almost £11bn each year and contribute to around 14,000 business closures annually.
Commenting on the legislation, BCIS chief economist Dr David Crosthwaite said improving payment certainty would be welcomed across much of the industry, particularly given continuing pressure on construction supply chains.
He said: ‘Construction businesses will welcome efforts to improve payment culture, particularly given the strain late payment places on smaller firms carrying labour, material and financing costs while waiting to be paid.
‘At the same time, payment practices in construction are rarely straightforward. Valuations, certification processes, project changes and disputes can all affect when money moves through the supply chain. Proposed measures such as tighter payment terms and restrictions on retentions are therefore likely to generate debate about how risk is managed across projects.
‘Greater certainty around payment could improve confidence not only across supply chains, but also among lenders and finance providers. In a sector where many businesses rely on some level of debt financing, clearer payment timelines and improved cash flow visibility may support investment and resilience.
‘The direction of travel towards faster and more transparent payment practices is clear. The challenge for the industry will be ensuring reforms strengthen supply chain confidence without simply shifting commercial pressure elsewhere in the project life cycle.’
The proposed reforms come as construction businesses continue to face pressure from higher financing costs, subdued market conditions and ongoing concerns around insolvency risk across parts of the supply chain.
Industry groups are expected to broadly welcome measures designed to improve payment certainty for SMEs, although the proposed retention ban is likely to generate debate across the sector about risk allocation, project assurance and contract administration.
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