Legislation Update: Department for Business, Energy & Industrial Energy’s Consultations on payment practices in the Construction sector

• United Kingdom

• Construction and engineering

22-11-2017

Open Consultation on the 2011 Changes to Part 2 of the Construction Act

The first consultation is intended to support a non-statutory post implementation review of the 2011 changes to Part 2 of the Construction Act as part of the government’s commitment to delivering better regulation. By way of this consultation, the government is looking to involve construction industry professionals in the review of matters directly affecting them and their businesses.

To help inform the government’s review, this consultation will gather evidence on the effectiveness of the 2011 changes, the framework of rules created by the amended Act, the affordability of these changes for business, and the relevance and misuse of adjudication. For example, it poses a range of questions to assess whether the 2011 amendments have, in fact, reduced the costs of adjudication, encouraged fewer disputes, adjudications, simplified the adjudication procedure, and improved the clarity and transparency of the payment framework.

Open Consultation on Retention Payments in the construction industry

The second consultation is intended to seek information on the practice of cash retention under construction contracts. The consultation will serve to supplement independent research commissioned by the government and carried out by Pye Tait Consulting to identify the problems associated with cash retentions and the solutions which will effectively and adequately address those challenges.

The consultation collates information on whether, inter alia, the retention-related challenges are anticipated and addressed within the current payment framework, and whether participants agree with the independent research’s conclusions on (1) the feasibility of a retention deposit scheme, (2) the use of alternative methods of security in lieu of retentions, (3) the unjustifiable withholding or non-payment of retentions, and (4) the proportion of retentions being lost to contractor insolvency. These matters go to the root of the common issues faced by contractors when their cash is retained including but not limited to inflated bad debt and a drain on working capital.

The two consultations run in parallel to each other, and the deadline for the consultations’ responses is set to January 19 2018 (11.45pm). The payment mechanisms of the construction industry have shown cracks and sufficient scope for improvement. The findings derived from such consultations are therefore key to assess the progress made thus far towards best industry practice, and to identify whether or not further government intervention is necessary.